Silver may be looking at a fourth consecutive year of declines, but the silver price forecast for the rest of 2015 and 2016 looks bullish. At least according to a number of major key indicators.
Silver Will Shine When the Stock Market Corrects
Are silver’s high-flying days gone? Trading near $15.50 an ounce, silver prices have been essentially flat since the beginning of 2015. While silver is not performing as well as it did during the halcyon days of 2009-2011 (when it soared approximately 440% to $49.00 per ounce), silver continues to be one of the best long-term plays out there. And, it could add significant value to your portfolio.
For starters, precious metals like silver and gold are considered a great hedge against economic and political uncertainty. The more it looked like Greece would default on its loans and be kicked out of the eurozone, the more silver prices rallied.
But then silver prices fell when it was announced Greece had, as virtually everyone predicted, thrashed out a deal with European creditors. Now that Greece is old news, investors are turning their back on silver. That might be a little premature. Wall Street has provided us with more than enough reasons to remain bullish on silver.
One needn’t look further than the stock market. Yes, good news; the S&P 500 is trading near record levels. Bad news; the tired bull market is seriously overvalued and poised for a well-deserved correction.
According to the CAPE price-to-earnings (PE) ratio of the S&P 500, the stock market is overvalued by roughly 63%. The ratio is 26.18; that means that for every $1.00 of earnings a company makes, investors are happy to plunk down $26.18. The last times the ratio was this high and investors were overly enthusiastic were in 1999 and 1929. (Source: Yale University, last accessed July 13, 2015.)
Physical Demand for Silver Remains Strong
Typically, when something with limited supply is in great demand, the price escalates. This isn’t the case when it comes to silver. Or at least not yet. And you have to ask yourself, why?
On the physical side, the demand for silver remains strong. June sales of the one ounce U.S. American Eagle silver coin more than doubled month-over-month to 4.8 million ounces and sales are up 80% year-over-year. (Source: usmint.gov, July 13, 2015.)
Demand for the Silver Eagle coin is strong and sales of the Royal Canadian Mint’s one ounce Silver Maple Leaf coin are at an all-time high. During the first quarter of 2015, Canadian Silver Maple Leaf sales increased 8.5% year-over-year to a record 8.9 million. This represents a 700,000 ounce increase over the 8.2 million ounce coins sold in the first quarter of 2014. (Source: mint.ca, July 13, 2015.)
Demand from India, one of the world’s largest consumers of silver, has surged. Imports from India jumped almost 20% in the first quarter to a record 7,708 metric tons. (Source: Bloomberg.com, July 13, 2015.)
Why the continued interest by investors in silver coins? Silver Eagle coins, Silver Maple Leaf coins, and silver jewelery guarantee investors a store of value that can be traded at any point. Paper assets, including most fiat currencies, are more of a promise-to-pay.
The less trustworthy paper money is, the more trustworthy physical assets like silver will be for investors looking to protect their wealth. If you were in Greece last week, would you rather have held $10,000 in silver or $10,000 in euros?
Key Silver Ratio Points to Upside Growth
Even increased demand from the U.S., Canada, and India hasn’t been enough to shore up silver prices. That’s because the price of silver is linked with gold. And gold prices have been declining amid reports that the Federal Reserve is going to start hiking interest rates.
The silver/gold ratio is calculated by dividing the price of an ounce of gold by the corresponding price of silver. This tells you how many silver ounces it takes to purchase one ounce of gold. Since 1970, the gold-to-silver ratio has averaged about 55.
Today, the silver/gold ratio is historically higher at 75. To restore the historical average silver/gold ratio, silver prices would have to increase to around $21.50 per ounce. And that’s a bullish signal for silver.
For the remainder of 2015 and into 2016, the forecast for silver remains solid. Silver will continue to be a better investment than gold. Historically, silver only needs to touch $30.00 per ounce to double. A level it has touched many times. For gold to do that it would need to hit roughly $2,320. And it’s never been there before.