METAL MARKETS Silver acting more like a base metal?

While many investors would tie the price of silver in with the up-and-down (of late) performance of gold, at least one analyst is making a case for lumping the precious metal in with what has been happening to base metals.

Commenting on silver, Laurence Prust & Co. of London says the metal’s price performance in 1987 was “more akin to that of some other base metals and arguably for the same reason. Over the past four years, supplies have been fairly static, demand has increased and the statistical surplus has narrowed.”

Base metals, in particular copper and nickel, have seen a resurgence in prices during a time of tight supply.

Silver last year averaged about $7(US) per oz, exceeding $10 in April and finishing the year in the $6.80 range. The metal — about 70% of the silver supply goes into industrial off-take — averaged $5.47 in 1986.

On the industrial side, Prust argues that the worst appears to be over for the silver market, although higher prices for the metal will likely stimulate increased mine production.

On the investment side, Prust argues the silver/gold ratio could prove to be a short-term plus for the metal. Since the Second World War, the normal price ratio has been in the 35-40 range; during 1987, the ratio rose to as high as 75, and finished the year at around 70.

“Any upward progress in the gold price is almost certain to lead to a more exaggerated rise in the silver price and a return to the $10-per- oz-plus mark seen last May is not out of the question,” Prust says. “However, this would, in our opinion, both dampen the revival in industrial off-take and accelerate the rise in supplies.”

For 1988, Prust is forecasting a price range of $7-$8 for silver. Investment potential

Taking a less optimistic view is Metals and Minerals Research Services of London, which foresees a lower average price this year and which feels any rise in the silver price will come about only because of the metal’s investment potential.

Commenting on supply, the firm says coin issues have played a role in helping to reduce government stocks of the metal.

Negative factors to watch for are recessionary fears, which would act to dampen any investor enthusiasm, and higher mine supplies.

“Although we expect industrial demand to continue to grow in 1988, the rapid reactivation of surplus mine capacity * * * is likely to increase our balance table surplus up to levels last seen in 1985,” writes Metals and Minerals.

“With higher inflation in the wings for 1988, we may still see a continuation of investor support for the metal, but the silver price will now do well to average 1988 at more than $6 or 6.50 per oz.” Showing some independence

Shearson Lehman Securities recently reported that while silver generally tended to follow gold in 1987, since Jan 1 the metal “has been more independent, receiving good fundamental and investment support, to values as high as $7.05 as investors take the the view that within the sector silver has some catching up to do.”

Economic forecaster Ian McAvity was recently quoted as predicting improved silver prices, based on the current high silver/gold ratio.

Largest silver producer in the world is Mexico, followed by Peru. Other major producers of the precious metal include Canada, the United States and Australia.

Total silver production (primary and secondary) in 1987 was an estimated 15,300 tonnes, while consumption was slightly more than 13,000 tonnes. The deficit of more than 2,000 tonnes was up from 1986 but down from 1985.

Photography, accounting for about 40% of silver’s industrial consumption, is the largest single use for the metal. Accounting for about 30% of the industrial consumption is the electrical and electronic industry. Sterling ware and jewelry use a combined 5% of the silver supply.

Other industrial uses for silver include in catalysts for chemical processing, mirrors, brazing alloys and solders, electroplating, dental amalgams, medical equipment, chemicals, coins, medallions and commemorative objects.