Silver Remains Bullish
Silver is in the midst of a mini-Renaissance. After trending downward since the middle of May, the silver price rebounded in early October, and is up 9.3% since the beginning of the month, near $15.85. Unlike previous increases which were very short lived (January, March, and May 2015), silver prices have held steady over the last few weeks.
This has resulted in more than a few analysts calling for silver prices to trade sideways. Keep in mind, at the beginning of the year, analysts had been calling for silver prices to average just $13.00 per ounce in 2015. But at $15.85, silver is trading well above its 50-day average and at its 200-day moving average—markedly higher than the $13.00 per ounce predictions.
While analysts continue to call for silver to trade sideways or retrace to a six-year low near $14.50 an ounce, I believe the silver price will continue to rally.
Catalysts Send Silver Prices Higher
Because silver, like gold, is used to hedge economic uncertainty, it tends to run in the opposite direction of the U.S. dollar. And the U.S. dollar has been strengthening over the last week. In fact, the greenback enjoyed its best week in five months.
But that’s all relative. The U.S. dollar isn’t strengthening because the U.S. economy is on fire; it’s rising by default, because other global economies are doing so poorly. Case in poin;, European central bankers are hinting at more stimulus and China has cut its interest rate for the sixth time over the past year.
So it’s not a surprise to see silver prices holding up against a strong U.S. dollar.
Also, the Federal Reserve meets later this week but virtually no-one expects it to change interest rates. Why? Because the global economy is in tatters and could not withstand higher interest rates. Especially emerging economies.
The same holds true here in the U.S. The economy may be doing better than it was a couple years ago, but high government and private debt levels mean the economy will, like the rest of the world, not be able to withstand higher interest rates.
That’s not a total surprise here. In 2014, I was predicting the Federal Reserve would hold off raising interest rates until the first quarter of 2016 at the earliest.
Even when the Federal Reserve does raise rates, it won’t be because it’s good for the economy. Rates will rise because they can’t be kept at zero forever. The Federal Reserve cannot be a lackey to Wall Street forever.
The fact is the global economy is doing poorly. And the U.S. economy is not doing well enough to support the rest of the world. Nor should it have to. This will be borne out when third-quarter earnings season is over.
But for now, of the 173 companies that have reported earnings to-date for the third quarter, the blended earnings decline is -3.8%. If the S&P 500 reports a decline in earnings for the third quarter, it will mark the first back-to-back quarters of earnings declines since 2009. For the fourth quarter, of the 26 companies that have reported guidance; 19 (73%) have issued negative EPS guidance. (Source: “Earnings Insight, October 23, 2015,” factset.com, October 27, 2015.)
Despite the supposedly strong U.S. dollar, bad economic news will continue to weigh down on global sentiment and support silver and gold prices. When the Federal Reserve does begin to raise rates in 2016 (because it has to at some point), you can look for silver prices to gain even more strength.