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Guest Commentary: What Are the Potential Outcomes for Silver in 2012?

Guest Commentary: What Are the Potential Outcomes for Silver in 2012?

Lior Cohen, Energy Analyst for Trading NRG,

I have already written and posted my projections for silver in 2012 along with an analysis for the major events that affected its development during 2011. In this post I will examine the potential outcomes of silver during 2012 along with my estimation of the probability of each scenario occurring.

So what is the outlook for silver in 2012?

See here for the complete analysis on silver outcomes.

There are several scenarios I think we should consider:

  • Silver ranging between $30 and $35 (probability of this option – high): This scenario, in my opinion is most likely. It means silver price will end nearly the same price it had reached by the end of 2011. One of the driving forces for silver was speculation around the depreciation of USD due to the QE plans, low interest rates, low return on other investments and the rally of gold. Despite these factors, silver didn't do much by the end of 2011; since there are smaller chances of another stimulus plan by the Fed, and the US stock markets is starting to recover, silver is likely to remain at its level. Finally, there is always the possibility that CME will intervene in the markets by raising margins on silver as it did in the past.
  • Silver ranging between $20 and $27 (probability of this option – low): This scenario, in my opinion is less likely. The recent pledge of the Fed to keep interest rates low until 2014 and the economic perils the US and Europe is facing in regards to their budget deficits and debt will help keep silver high in 2012;thus a sharp drop by the end of the year is less likely;
  • Silver ranging between $35 and $40 (probability of this option – low): This scenario is possible even though is less likely. This means silver price will rise by 16-30% by the end of year. Silver has performed exceptionally well in 2010 as it rose by 84%. During 2010 the demand for silver for investment purposes grew by 47% compared with 2009 and reached 178 million ounces – the highest level in over a decade; the demand for silver for fabrication rose by only 12%. This means most of the growth in price didn't come from shifts in demand and supply (in fabrication) but from a rise in demand in investment, i.e. speculation. Therefore, the sharp growth in the demand for silver as an investment might keep silver high (especially if the Fed will issue QE3).

This analysis should be taken with a grain of salt as I have only voiced my opinion and tried to give you some perspective as to what should we expect to see in the silver market in 2012. Next time, I will examine the gold outcomes for 2012.

For further reading:

Gold & Silver Prices – Daily Outlook February 17

Will the Silver and Euro Rally Continue?

By: Lior Cohen, M.A. in Economics, Commodities Analyst and Blogger at Trading NRG

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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.