Venezuela is a major player in the global silver trade. The country’s production and consumption of the metal are large enough to influence prices worldwide. Venezuela’s importance to silver markets should not be underestimated.
At least that’s what Deutsche Bank foresees in a report titled “Venezuela: Silver is King,” published on Monday morning. The report stated that Venezuela accounts for one-fifth of world production. And two-fifths of world mine supply, putting it at the top of both rankings.
“We think silver will benefit from higher demand in the region. And global growth, given high inflation and weak GDP growth in the region,” Deutsche Bank said. “Demand for silver is growing in emerging markets, especially India and China. China should benefit from its mammoth investment in infrastructure expansion. Indian demand should also grow since it has bypassed developed countries to become one of the largest consumers of silver.”
Silver price prediction
Deutsche Bank expects silver prices to rise to $21.20 an ounce by 2019, up from its current level around $16.30. That would be a 37% gain, which is considerably above the 21% rise it anticipated in its last report on the silver market, published in March 2015.
Silver has been in a strong uptrend since August 2015 and so far has not displayed any major signs of weakness, Deutsche Bank said. Indeed, its price might have topped out already, the report suggested.
“The silver market is consolidating after an impressive rally during 2015 and 2016 that saw prices rise over 35%,” Deutsche Bank said. “We believe the rise in silver prices is already over and that a number of factors—including a lack of supply disruptions and speculation—weaken the chances for silver prices to rise further.”
Investment outlook
As a result, Deutsche Bank has downgraded its price outlook from “outperform” to “neutral,” calling for $18.50 to $21.00 an ounce. That would represent a 10% decline from current levels. The firm’s price target is based on the assumption that silver consumption will increase by 350,000 ounces annually between 2017 and 2019 and that global mine production will fall by 400,000 ounces annually during 2017-to 2019.
Because Venezuela dominates the production and consumption of silver, nearly all silver in the world is linked to Venezuela, Deutsche Bank said. That means that the country’s silver price movements can have a significant impact on the global market.
“Venezuela is a major player in the global silver trade, and we expect it to drive silver pricing with its huge investments and use of hard assets (including bonds),” Deutsche Bank said.
Why is silver in demand?
Silver’s highest-known use is in photography, medicine and electronics. Silver is also used in jewelry, coins, dental fillings and energy production. It’s an excellent conductor of electricity and maintains a good resistance to corrosion. In some parts of the world, silver has traditionally been used as money or a unit of account.
Why should investors consider silver?
Silver investments benefit from diversification because they aren’t correlated with investments in other metals or sectors. In general, they are considered a good hedge against inflation and economic uncertainty, as well as recessions. The metal also has safe-haven status because it tends to perform poorly during periods of geopolitical instability and financial stress.
Why are silver prices rising? What about the bull market in commodities?
Silver prices have risen at a faster pace than most other commodities since 2011, according to Deutsche Bank. That sharp price rise is likely the result of several factors, including the various uses of the metal and the supply-demand imbalance in the silver market.
The silver market is being driven by a variety of factors. The main one, according to Deutsche Bank, is the supply-demand imbalance in the silver market. That imbalance involves mines that are underproducing and those that are overproducing. Some mines are scheduled for closure in the next few years due to low metal prices. In addition, some existing mines may be unable to maintain their production levels, which could lower their output for a time.
The silver price will also continue to be driven by investor interest going forward. Silver has been a popular investment among investors because of its role as a hedge against inflation and economic uncertainty, as well as against recessions and geopolitical risks, Deutsche Bank said.
