Silver: Market is rebalancing - BAML

Research Team at Bank of America Merrill Lynch suggests that the silver has bottomed out after a prolonged period of price declines and in their view, the worst is behind for silver, with prices between $15/oz and $20/oz justifiable.

Key Quotes

“Silver prices could fall only if investment demand declined yet again. We reinforce our more constructive view on silver as fundamentals have steadied. Digging a bit deeper, we acknowledge that it is challenging to model silver market balances because several sectors, including scrap supply and jewellery demand, are price-sensitive, i.e., forecasting those is generally only possible once a price level has been set.”

“As such, we look at the silver market differently to the base metals and, assuming that investors are the marginal buyers, we ask how strong non-commercial demand needs to be to balance the silver market at $15/oz, $20/oz and $25/oz (aggregate investment can be positive or negative). In case it is negative, this can reflect either dis-investment, i.e., investors selling the silver they have accumulated; alternatively, in our model, it can also reflect a shortage of scrap and mine supply, i.e., shipments necessary to balance the market. We aggregate coin/ bar purchases, inflows into ETFs, silverware and implied investment under aggregate investment.”