Silver Bear Market Seen Ending on Europe Crisis

Jake Lloyd-Smith, James Poole
October 20, 2011

(Bloomberg) -- Silver, the best-performing and most-volatile precious metal of the past year, may rebound from a bear market as investors bet on growth in developing nations and an extended European debt crisis.
The metal may average $38 an ounce this quarter and rise to a record $42 by the final three months of 2012, compared with $31.035 at 5:43 p.m. in Singapore today, according to the median in a Bloomberg survey of 11 analysts. The gains will mean record profit for producers Pan American Silver Corp. and Fresnillo Plc, analyst estimates compiled by Bloomberg show.
China, the biggest emerging-market user, is expanding at more than five times the speed of the U.S., driving consumption of the precious metal most used in industry. Demand is also coming from investors looking for an alternative to cash and gold, which costs about 50 times more than silver. The 30-week correlation coefficient between the two metals is now at 0.82, from as low as 0.47 in 2005, data compiled by Bloomberg show, with a figure of 1 meaning the two move in lockstep.
"Prices now look relatively cheap to where they have been recently," said David Wilson, an analyst at Societe Generale SA in London and the most accurate silver forecaster tracked by Bloomberg in the two years through June. "The backdrop is still very supportive for gold and we think that silver will leverage off the back of that. Emerging markets are going to be important for demand for sure."