Barclays: Silver prices set to remain volatile

LONDON (Scrap Monster): Silver prices are likely to remain volatile as the outlook for industrial demand softens but investor appetite is not overextended, said Barclays Capital in a daily commodity research note.

According to Barclays, silver was strong a year ago due to healthy industrial and investment demand.

“This year, investor positioning in silver is much cleaner, exposing prices to upside potential, but now the industrial picture is far from robust.” the bank added.

Chinese silver imports are down about a third for the year to date. “On a product basis, semi-manufactured silver continued to decline in February, while silver powder and jewelry imports recovered but are still down for the YTD,” Barclays continued.

Meanwhile, even though semiconductor sales hit a record in 2011, year-on-year growth was only 0.4% and sales started to slow toward the end of last year, with February marking the eighth straight month of weaker year-on-year sales.

Also, worries about European demand persist. Barclays points out that investment demand is below a year ago for exchange-traded funds, futures-market participation and coin sales, meaning scope for gains.

“In turn, we believe silver is set to remain volatile given the scope for growth in investment should it piggy-back off gold, but the same concerns around economic growth leaves industrial demand vulnerable and prices exposed to the downside,” Barclays concluded.