An ounce of gold, which bought a three-year high of 66.6 ounces of silver on July 19, will be worth 70 by the end of the year as demand fails to soak up an excess of the cheaper metal, according to UBS AG.
“The silver market is in fabrication surplus, and the only thing that’s keeping it alive is investment demand and there is no meaningful increase in ETFs,” said Dominic Schnider, head of commodities research at UBS’s wealth-management unit in Singapore. “In an environment where gold falls, silver simply just does more, it’s more volatile.”
The CHART OF THE DAY shows the price of gold relative to silver as both slumped this year, with the ratio at 66 on July 26, a week after reaching the most since Aug. 25, 2010, data compiled by Bloomberg show. The average over the past decade was 58, with the figure last reaching 70 in February 2010. The lower panel tracks performances this year of the two metals and Standard & Poor’s GSCI Spot Index of 24 commodities.
Gold and silver plunged into bear markets this year as investors lost faith in the metals as stores of value amid speculation that the U.S. Federal Reserve may taper asset purchases that helped gold cap a 12-year bull run last year. Silver’s 33 percent decline this year is the biggest drop on the S&P GSCI gauge. Gold has fallen 20 percent.
Assets in silver-backed exchange-traded funds, or ETFs, climbed 0.9 percent this year to 19,077 metric tons as of July 25, after rising to a record 19,738 tons in March, data compiled by Bloomberg show. They expanded 9.4 percent, or 1,621 tons, in 2012. Morgan Stanley forecasts that global silver supply will outpace fabrication demand, including sales for electronics and photography, by 4,826 tons in 2013, a fifth year of surplus.
Industrial demand may slow as the global economic recovery falters, with the International Monetary Fund cutting its 2013 growth forecast to 3.1 percent this month, from an estimate of 3.3 percent in April. About 50 percent of silver is used in industry, compared with 10 percent for gold, data from the Silver Institute and World Gold Council show.
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