Silver, the poor's Gold may drop to $20/oz: CPM Group

WASHINGTON (Scrap Monster): Silver may drop down toward $20 between now and 2014, said CPM Group, a New York-based commodities consultancy.

The group continued that, white metal is expected to average $30/oz this year, down from the 2011 record of $49 and the average price of $35.29 for last year. They do not expect prices to return to levels since before 2008.

The commodities consultancy pointed out their forecast differs from other, higher bank projections made by drawing accelerated trend lines based on past performance.

Analyst with CPM Group stated that, “We want to reiterate here that what we have been projecting, which seems to be emerging at present as reality in the markets, is a cyclical peak in a secular, longer-term bull market.

“We expect silver prices to fall only modestly from their recent record high levels, and to stay high by historical standards. And, we expect prices to rise more in the future, when investors periodically become more concerned about economic and financial stability,” they continued.

The decline in investment demand is driving some of this peaking of silver prices and is happening for two reasons.

--One is that high prices have curtailed demand. “In this way, one should realize that a bull market, in any asset, carries with it the seeds of its own ending. Prices ultimately rise to levels that shift supply, demand, and investment demand. This is an immutable economic law, although one which investors repeatedly ignore, whether it is in gold, silver, copper, bank stocks, real estate, Internet stocks, or so many other assets.”

--The second, and more important factor is that investors backed away from “the unbridled, sometimes irrationally overblown, fear of imminent financial system collapse and economic depression that had been driving them to buy enormous amounts of silver regardless of the price, until September 2011.”

Instead of a financial system collapse, current economic, political and financial problems will likely remain problems for years.

“In this environment, investors would continue to want to buy and hold silver as protection against these problems. However, they would become more price sensitive. Instead of chasing metals prices ever higher, they would stop buying when prices rose sharply, and buy when prices dipped lower,” the group added.

Fundamentally, silver-mine supply is rising while fabrication demand for silver is rising.