On Monday, HSBC lifted its average silver forecast for 2013, citing physical demand in Asia as a support for prices, although rising supply and shifts in U.S. monetary policy could constrain rallies.
The bank said it expects silver to trade in a 17-23 per troy ounce range for the rest of this year. It raised its average price forecast for 2013 to 22.90 an ounce from 21 an ounce.
Analysts said silver prices will be supported by greater demand in the form of jewelry, coins and bars. Industrial demand for the metal is also likely to increase, as is Indian import demand.
“Strong imports imply Indian jewelry demand is benefiting from the government’s efforts to restrain gold purchases,” the report said. Last month, the Indian government said it will require banks and dealers that import the gold to ensure that 20% of imports are re-exported, in its latest attempt to curb gold imports and narrow its current account deficit.
Despite this extra support for silver, HSBC noted that rising supply will be likely to constrain price rallies.
“Supply remains strong; both in terms of mine production and scrap, and this will cap rallies,” said HSBC analysts. “Nevertheless, prices remain above the marginal cost of production, and silver is still worth digging for.”
The bank said any shift in U.S. monetary policy away from liquidity measures may reduce investor appetite for inflation hedges gold and silver, and also cited a muted growth forecast for inflows into silver-backed exchange-traded products as another factor pressuring prices.