Silver likely to follow gold down in the short term - UBS
UBS has cut its, one month and three month price targets for silver from $26 and $28 respectively to $17.50 and $20.50.
This the bank says, is because silver currently lacks its own drivers at the moment and, as a result, is taking its lead from the gold market, which has proven particualrly poor in recent weeks.
"This means that the white metal would also come under pressure as gold sentiment sours further. And given silver's tendency to overshoot gold moves, the downside risks are greater in the short-term," the bank writes in its morning commodities note.
Longer term, while the bank downgraded its annual average forecast for 2013E to $24 from $29 previously, and for 2014 from $25 from $30, it does believe that the metal is likely to benefit from any recovery in the global economy as a result of its industrial links.
As a result, it has kept it 2015 forecast unchanged and revised its 2016E higher to $25 from $19 previously.
"The elements of silver, which offer investors exposure to the gold price and effectively an insurance against macroeconomic uncertainties, currency debasement and the implications of such on inflation will work to its detriment based on the current macro outlook," UBS explains.
Adding, "Silver is bound to suffer along with gold as Fed asset purchases are scaled back, and potentially even halted next year. But as such an outcome would only emerge if economic conditions have picked up sufficiently, some of the blow to silver would be offset by an increasingly positive outlook for industrial demand.
Continued volatility
But, while the bank expects lower prices in the short term, the group also expects prices of the metal to trade in fairly tight ranges.
This, it says, is for two key assumptions: First, "silver is likely to continue its struggle to regain the wider investor base and enthusiasm that it enjoyed a couple years ago.. Second, the 'normalisation' of the global economy and the return to healthy growth rates should increase the role of fundamentals in the silver market: robust industrial demand would offer more stability to silver prices on a yearly average basis."
But, UBS says, that is not to say that the metal is likely to become less volatile.
"Silver is likely to keep its reputation of having highly erratic behaviour. For market participants who have higher risk tolerance, volatility is part of silver's charm. But for others, silver's ability to trade violently – as seen back in 2011 – has prompted these investors to stay away."