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Silver smashdown imminent

Section: Daily Dispatches

The warning is the usual disinformation from GFMS.

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Silver to Hit $15/oz
on Investor Demand,
GFMS says

From Reuters
Tuesday, November 14, 2006

NEW YORK -- Strong investor buying of silver, fueled by a popular exchange-traded fund, is likely to take the silver price 17 percent higher to $15 an ounce in the next few months despite lower fabrication demand, precious metals consultant GFMS said on Tuesday.

The London-based firm said in its half-yearly Interim 2006 Silver Market Review that demand from investors remained the main driver of silver and had raised silver to a "well-above-equilibrium" price level.

"GFMS expects significant price volatility but, over the next few months at the least a bias to the upside, with a spike to $15/ounce very possible," GFMS said in its report, compiled by GFMS for the Silver Institute, a trade group for silver miners, refiners, and fabricators.

Spot silver traded at around $12.80 an ounce Tuesday afternoon. Between June and October, silver prices have gained almost 30 percent. Spot silver rose to trade around $15 in May, ignited by the launch of the iShares Silver Trust, the first U.S. silver ETF.

"There is a possibility that we will see more investor money going to the metal, particularly as gold has had a good run, and silver could also be quite a bit higher," GFMS Chairman Philip Klapwijk told Reuters.

But GFMS cautioned that as investors were building up stock through ETF, they might decide to liquate at some point, although the risk was moderated partly because of the ETF's broad ownership.

Also, slowdown in industrial demand and substantial rise in mine production growth might hurt silver prices in 2007, GFMS said.

Total fabrication demand -- which includes demand from industries, jewelry and silverware, and photography -- should fall by just over 3 percent for 2006, GFMS said. It noted that demand saw solid growth in 2005 despite the massive price increase.

GFMS's Klapwijk said a large part of silver fabrication demand is not very price sensitive in the short run.

Industrial demand was expected to post a full-year gain of 1 percent, but it should slow toward the end of 2006 and possibly fall in 2007, according to GFMS.

GFMS also forecast that demand for jewelry and silverware to fall 8 percent due to a slump in India, while photographic use was expected to drop by nearly 11 percent in 2006 due to the switch to digital photography.

In terms of supply, GFMS was expecting mine production to increase by 0.6 percent, or 4 million ounces, in 2006.

GFMS said that it was pegging greater mine output increase of around 16 million ounces in 2007, with strong growth forecast to continue into 2008.

Scrap supply was forecast to be broadly unchanged this year despite higher silver prices, while government sales should be on track for a marginal increase, GFMS said.

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