While the majority of the talking heads on Wall Street remain bearish on silver, the fact of the matter is that a number of key economic and supply/demand metrics point to a bullish silver price forecast for 2015.
Economic Drivers Affecting Silver Outlook in 2015
With the price of silver exchanging hands at a support level near $15.00 an ounce, many investors bullish on the precious metal are hoping for a rebound.
Typically, silver prices run in step with the price of gold. That said, the price of silver has been hit harder than gold. Gold prices are down more than 40% since hitting a record $1,923 an ounce intraday high in September 2011. Silver, on the other hand, is down almost 70% after hitting $49.80 in May 2011.
Trading at a five-year low, silver is much more affordable than gold and is more attractive to retail buyers. In fact, one ounce of gold is equal in price to 75 ounces of silver. That’s the biggest spread since early 2009.
Why are investors not jumping in on silver? Because the stock market is trading at record levels and most retail investors only turn their attention to precious metals when the markets are performing poorly.
While the S&P 500 and Dow Jones Industrial Average may be at all-time highs, it’s fair to say the stock market has been fuelled more by artificially low interest rates than increasing revenue and earnings. According to the CAPE ratio, a cyclically adjusted price-to-earnings valuation measure, the S&P 500 is overvalued by 65%.
A day of reckoning will come when investors turn their attention to fundamentals and realize what’s supporting this bull market. At the same time, investors should be looking at silver fundamentals and ask whether or not prices are being suppressed.
Thanks to silver tumbling to a five-year low, there has been a global scramble to purchase the precious metal. This comes at a time when lower silver prices have forced silver producers to cut back on exploration.
So, what are the main factors that could drive the silver forecast in 2015?
Physical Demand for Silver
According to the most recent annual data, total physical demand for silver was a record 1,081 million ounces in 2013. In the same year, the total supply of silver was 978.1 million ounces. The total demand for silver in 2013 was 1,081.1 million ounces. (Source: The Silver Institute web site, last accessed March 12, 2015.)
The three primary drivers of the price of silver are its use as an investing instrument like gold, its use in jewelry, and its use in industry. For the most part, gold has no industrial use; silver, on the other hand, is used in green technologies like solar energy and water purification, and in windows and glass. Silver is also used in medicine, nanotechnology, batteries, electronics, catalysts, and the automotive industry.
Despite the global economy grinding to a near halt, the physical demand for silver for industrial uses dipped by less than one percent to 586.6 million ounces, or 54% of total physical silver demand. Looking ahead, total silver industrial demand is expected to grow 27% by 2018. (Source: The Silver Institute web site, last accessed March 12, 2015.)
Demand for silver coins and bars accounted for more than a fifth (23%) of total demand in 2013, increasing 76% year-over-year to a record 245.6 million ounces. According to estimates, investors are expected to accumulate as much as one billion ounces of silver over the next decade. (Source: The Silver Institute web site, last accessed March 12, 2015.)
On a local level, demand for the American Eagle silver coins from the United States Mint outpaced sales for gold and platinum coins, reaching a record 44,006,000 ounces in 2014. Sales are up 30% since 2012 and more than 350% since 2004. (Source: United States Mint web site, last accessed March 12, 2015.)
Meanwhile, increasing demand for silver coins helped the Royal Canadian Mint sell out of its Bald Eagle silver coins in 2014. Its one-ounce Silver Maple coin also sold incredibly well. (Source: Royal Canadian Mint web site, last accessed March 12, 2015.)
Jewelry, which accounted for 18% of silver demand, rose 10% year-over-year to a record 198.8 million ounces. India, the world’s largest consumer of silver and gold, increased its 2014 silver imports 15% year-over-year to a record 7,063 tonnes. (Source: BullionStar.com, last accessed March 12, 2015.)
Silver Outlook for 2015
Increased demand for silver at a time when supply is down supports a bullish outlook for silver.
Keep in mind that on the industrial side, silver demand slipped less than one percent—at a time when U.S. economic growth is slow, China is experiencing its slowest pace in 25 years, Japan is back in a recession, the eurozone is straddling one, and Russia’s recession could become a depression. An economic rebound will see the industrial demand for silver increase significantly.
An overvalued stock market that begins to reflect actual valuations will also send investors back into silver and gold, sending the precious metals’ prices higher. While silver prices have pulled back from their 2011 highs, the precious metal is still in a bull market and has found support near $15.00. Silver is also well above the $9.00 lows seen in late 2008.
When you take supply/demand metrics and fundamental and technical indicators into consideration, silver predictions for 2015 remain bright.