HSBC Securities is raising its forecast for the average price of silver in the next two years on strong retail investment demand and a narrowing market surplus.

HSBC analyst James Steel, who addressed the ETF Securities Annual Precious Metals Conference 2011 on Thursday, raised his average 2012 price forecast to $34 per troy ounce, and his average 2013 price forecast to $30.

Both forecasts are $2 higher than the previous forecasts.

We expect silver prices to rise again, but only moderately, he said. Prices are finding support from strong retail investment demand for coins and small bars.

Steel expects demand from silver exchange-traded funds will increase in 2012 if investors seek safe-haven assets. Also, increased industrial demand should support prices, but the pace of industrial consumption should moderate from 2011 levels, he said.

Steel also introduced a 2014 forecast of $28 and maintained his five-year outlook unchanged at $25.

The silver market will increase this year to 161,000 ounces from last year's 95,000 ounces but will narrow next year to 138,000 ounces, Steel said.

We believe that current price levels largely reflect underlying physical supply/demand balances and investor sentiment, but with a slight upside bias, he said.