Silver Prices: Here’s Why the Bears Are Wrong on Silver Prices

Silver Prices: Here’s Why the Bears Are Wrong on Silver PricesBullish Outlook for Silver Prices in 2016

Silver prices trended upward after the Chinese stock market crash on Monday triggered a demand for safe-haven investments. Further adding a boost to silver is the mounting geopolitical tension in the Middle East, where Saudi Arabia and its allies have cut political ties with Iran. Meanwhile, the juggernaut between Russia and Syria is adding pressure to NATO partners.

Amid these changing global political and economic circumstances, betting on silver prices is becoming increasingly risky. For a trader, it is all or nothing (mostly nothing!). I prefer to liken it to Russian roulette.

But for a patient investor, there is good news, because the one investment strategy that works best with precious metals is buy-and-hold investing, not market timing.

Traders of silver wrongfully follow day-to-day price movements. Typically, making a solid profit on such a strategy is almost inconceivable. Such a practice only lends to depression and anxiety.

If you’re a seasoned investor, need I remind you the universal rule of investing? The only way to beat the market is to buy low and sell high. There are no short-cuts.

The best way to play the precious metals is to look for a bottom, buy in, and forget it for the next five to 10 years. Finding the bottom is the key and just like the holding period, the period for this historical analysis should, too, be long. If you look at the silver price chart below, the prices have now tanked below five-year lows—and 10-year lows are not too far.

Silver Spot Price Chart

Chart courtesy of www.StockCharts.com

Having established a reasonable entry point, let’s now make a reasonable prediction as to where silver prices are headed by analyzing the two metrics that define price: supply and demand.

Sales figures for American Eagle silver coins point to rising demand. Data for the last four years show that sales for the coins have consistently gone up. (Source: “Bullion Sales/Mintage Figures,” United States Mint, last accessed January 5, 2015.)

Meanwhile, industrial demand for silver is also expected to go up in the next five years. Silver is used as an input in various industries where a viable alternative to this grey metal is still missing.

On the opposite side of the equation, the silver supply is depleting. All the big silver producers in the world cut production levels in 2015. (Source: “Big Production Declines From The World Largest Silver Producers,” SRSrocco, August 6, 2015.)

Typical supply-and-demand mechanisms suggest that with supply falling and demand rising, the excess in demand will help push prices up. The questions are if and when will that happen?

The answer to the first question is certain; it will happen! The markets are tuned in a way that after every fall comes a rise. Plus, the demand-supply data reiterates the same conclusion.

The answer to the second question, however, is a matter of speculation. For long-term buy-and-hold investors, though, it shouldn’t be a cause of worry.

The world is becoming less and less safe, as political tensions continue to mount in virtually all of the most powerful regions in the world. Meanwhile, big economies like China, Japan, the eurozone, and Saudi Arabia are struggling. As times get tougher for world currencies, the ultimate winner will be one who has a stash of silver coins safely put away to be sold when the time is right and silver prices are high.

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