While many are pessimistic about the performance of silver, my silver price forecast for 2015 is bullish. In fact, I believe the demand for silver will surprise investors this year. There are two main reasons that keep me bullish towards silver: complacency in the stock market and the fragile bonds market.
Let me explain…
Have Investors Forgotten 2007?
The Volatility Index (VIX) traded on the Chicago Board Options Exchange (CBOE) is often referred to as the stock market “fear” index. At its very core, the VIX gauges how investors feel—if it goes higher, it means investors are fearful; if it declines, or remains subdued, it means investors are optimistic and don’t think there are many risks.
Chart courtesy of www.StockCharts.com
Currently, the VIX sits near its all-time low and near the same level it was at in 2007, just before the stock market formed a top. This makes me wonder: does Wall Street see no risks?
At the very least, investors are complacent and have remained so for quite some time. What I would like to highlight is that periods of prolonged low volatility on the VIX are typically followed by sudden and unexpected moves higher. Investors should see complacency as a warning sign.
If volatility increases in the stock market, it will not be surprising to see an increase in demand for precious metals like gold and silver—the other safe haven.
Safe Haven Alternatives: Government Bonds
The other reason I remain bullish on silver prices in 2015 is the fact that alternative safe haven investments are not as attractive, specifically the bonds market. Institutional money managers, who are the big players, often look to sovereign government bonds and global currencies as stores of value. Currencies, including the U.S. dollar, never pay a dividend, but what about bonds?
The alternatives to precious metals are poor. Fixed-income assets are currently yielding investors next to nothing. We do not need to look any further than Europe. Investors buying German bonds maturing in 10 years are generating a 0.25% return on their investment. In real terms, after taking inflation into account, this is close to zero.
The situation in the U.S. isn’t much different. The U.S. 10-year notes are yielding 2.09%. And interest rates are expected to move higher, which could lead to lower bond prices. Would you want to park your money in a place where the chances of losses are higher? I don’t think any investor in their right mind would choose this option.
I believe low returns and increasing risks will lead investors to precious metals. As a result of this, silver prices could see a significant move to the upside.
Silver a Good Investment in 2015?
Diversifying your portfolio is one of the fundamental principles of investing. Precious metals like silver play a key role in protecting your portfolio from wild swings in the markets.
In 2011, silver prices peaked at $49.82 an ounce; silver now trades roughly 70% below that level. With complacency in the stock markets and the bonds market providing next to no returns with added risk, investors should pay attention to silver and silver-related investments. At their current level, silver prices are making the “other safe haven” look very attractive.