Silver Prices Undervalued?
Silver prices are setting up to skyrocket. Precious metal investors shouldn’t be overlooking the gray metal whatsoever. If you just look at the most basic factors of silver prices, they suggest the metal has a huge “Sale” sign on it.
The supply and demand equation in the silver market is distorted; supply is in severe trouble, and the demand is soaring. Basic economics say this is a perfect recipe for higher prices.
Silver Supply Side Continues To Get Crushed
Major silver production regions are reporting massive declines.
Consider the U.S. mine output. In the first seven months of 2015, U.S. mines produced 657,000 kilograms of silver. (Source: U.S. Geological Survey, last accessed October 5, 2015.) In the same period a year ago, U.S. mines produced 668,000 kilograms of the precious metal. (Source: U.S. Geological Survey, last accessed October 5, 2015.) This represents a decline of over 1.6% in silver output in the U.S. year-over-year.
Something to keep in mind; the U.S. is among the top 10 producers of silver.
Canada is reporting a massive decline in silver production as well. Between January and July of this year, silver mine output in Canada amounted to 227,860 kilograms. In the same period a year ago, this figure was 287,857 kilograms. (Source: Natural Resources Canada, last accessed October 5, 2015.) In other words; silver production in Canada has declined close to 21%!
I follow silver mining companies closely as well. As is stands, there’s severe pessimism among them. Well-known silver miners are focused on changing their revenue streams. They are buying gold mines in order to diversify their business. Their silver production is becoming questionable.
When supply declines, it creates shortage in the market. And shortages usually end in a higher price. Expect the silver prices to do that same.
Silver Demand Remains Solid
Supply in the silver market isn’t the only factor that suggests silver prices are setting up for massive rewards. Silver demand figures are very encouraging, too.
Though, silver has industrial uses as well, but I am paying attention to the silver investment demand. It is very impressive as we see it now.
Consider this; in the first nine months of 2015, the U.S. Mint has sold 36.05 million ounces of silver in American Eagle coins. In the same period a year ago, the U.S. Mint sold just 32.31 million. This means an increase of over 11.5%. (Source: U.S. Mint, last accessed October 5, 2015.)
Mind you, not too long ago the U.S. Mint halted sales of these silver coins due to inventory issues and not being able to meet the demand.
We are watching one interesting buyer of silver as well—India. The country with an appetite for gold is importing massive amounts of the “other” precious metal. For instance, in August $363.41 million worth of silver was imported into India. In the same period a year ago, it was $245.16 million. This represents an increase of over 48% year-over-year. (Source: India Ministry of Commerce & Industry, last accessed October 5, 2015.)
Silver Price Outlook for 2016
We just have a few months until 2015 ends. Don’t be surprised if we see strong base building for the rest of the year. We already see solid evidence of it. Please look at the chart below, and pay attention to the circled area. We are seeing silver prices holding the $14.50 level fairly strong.
Chart courtesy of www.StockCharts.com
Going into 2016, I am very optimistic. The gray precious metal could be the next big trade. I reiterate; silver prices may be down and out, but don’t ignore it. Solid percentage gains could be ahead.