Forecast for Silver Prices: Bullish for Years to Come
Despite the negative sentiment towards the precious metal, the forecast for silver prices looks severely bullish. Investors shouldn’t be ruling out silver prices of $50.00 a few years down the road. In fact, they shouldn’t be shocked if the precious metal is trading well above $100.00 an ounce a decade from now.
Silver prices hitting $100.00 may sound way too optimistic when the precious metal is currently trading at $15.00 an ounce, but it is possible.
Here’s How I Came to a 488% Increase in Silver Prices
To start, we must ask one question: what happened between October of 2008 and April of 2011, when silver prices surged 488% in the matter of 30 months, from $8.50 to $50.00?
It isn’t a secret why silver prices were shooting higher then: the financial crisis was full in force, the Federal Reserve was printing, and uncertainty at the global level was severe. So, investors rushed to the gray precious metal in order to find a safe haven to protect their wealth. What is also interesting to note is that during this time, mine production was increasing as demand was surging.
Between 2008 and 2011, global silver mine production increased by 13%. But don’t for a second buy into the idea that everything is back to normal and investors don’t really need to hedge their wealth; silver could really help. In fact, as it stands, there are a few factors at play that say silver prices could see a surge like they did just few years backs. (Source: “2012 Minerals Yearbook,” U.S. Geological Survey web site, last accessed November 4, 2015.)
A few of the developments I am watching very closely include the Chinese economic slowdown, the stress that’s building up among European banks, and the Federal Reserve’s intent to raise interest rates, thereby affecting trillions of dollars worth of interest rate derivatives.
Let’s take a closer look at these factors…
First, we have the slowing Chinese economy. Over the past few years, there’s been a massive boom in credit in the second-biggest economic hub in the world. Between 2007 and mid-2014, debt in the Chinese economy quadrupled, from $7.0 trillion to $28.0 trillion. (Source: McKinsey & Company, last accessed November 4, 2015.) If the economic slowdown in the country continues, a solid amount of this debt could be on the line.
Then we have the European banks, which look worried. Just recently we heard from Standard Chartered PLC; the bank reported a shocking 18.4% decline in revenue and massive losses. (Source: “Standard Chartered shares sink on shock quarterly loss,” BBC, November 3, 2015.) Additionally, we have been hearing troubling news from Deutsche Bank AG (NYSE:DB), the biggest bank in Germany, a country that is considered an economic pillar in the eurozone.
Finally, when it comes to the Federal Reserve, it’s no secret the bank wants to raise interest rates. This move could have a big impact on the derivative market. To give you some idea of its potential impact, in the U.S. alone, there was a nominal $153.7 trillion worth of interest rate derivatives at the end of the second quarter of 2015. (Source: “OCC’s Quarterly Report on Bank Trading and Derivatives Activities Second Quarter 2015,” Office of the Comptroller of the Currency, last accessed November 4, 2015.) Need I really say more? If interest rates move unexpectedly, major sums of money could be on the line.
These three phenomena have the ability to send ripple effects across the global economy and send investors running to safe havens like silver.
Precious Metals Outlook: Why Silver Prices Shouldn’t Be Ignored
Going forward, I remain bullish on silver prices. I am not discouraged by the gray precious metal’s prices remaining down for now; I see there’s value there.
Here’s what must be understood: silver prices could see a massive move in a very short period of time. Doing some simple math, between October 2008 and April 2011, silver prices increased by an average of 16% each month. This time around, the move in silver prices could be much more, especially since we have the supply side facing scrutiny as well.
Investors should be on the lookout for silver mining companies; they are selling for pennies on the dollar.