ETF Securities Research Blog

Strong PMIs support silver prices

A combination of higher inflation, a weakening US dollar (in first half of year) and improving manufacturing growth is likely to see silver prices trade higher to US$21/oz in 2017. Yesterday’s release of the Global Manufacturing PMI at 52.7 (above the long-term average of 51.4 and sitting at a 34-month high) indicates manufacturing activity will continue to pick up this year.

In line with our revised gold price forecast (see Gold outlook 2017: further upside likely), we have updated our silver outlook. We adopt the simple model described in Gold and silver: similar, but different. We assume that the gold price will reach US$1300/oz by mid-year and then falls to US$1230/oz by year end.


We expect COMEX silver inventory to fall after reaching decade high in December 2016. By the end of 2017 we expect inventory to be back to the levels we saw at the beginning of 2016 (17% decline).

We believe global PMI manufacturing will continue to improve, although pace of growth will slow as we approach a 6-year high of 55 at the year-end.

Mining capital expenditure has continued to slide. We factor an 18-month lag to this input into our model reflecting the time it takes forgone investment to bite into supply. Silver has been in a supply deficit for the past 11 years and further decline in mining investment is likely to see that deficit continue.


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