Silver Prices Survive Abysmal November
Forget the last five years, which have not been kind to silver; November was abysmal for silver bulls. Many are now wondering what’s in store for the grey precious metal in the New Year. While many analysts are predicting dire levels for both gold and silver prices in 2016 and 2017, I believe there are a number of short-term challenges that could send silver prices higher in 2016.
With the Federal Reserve set to raise interest rates on the back of a (so-called) improving U.S. economy and strong U.S. dollar, chances are excellent that silver prices won’t rebound anytime soon.
Currently trading near $14.25 an ounce, silver prices have been falling since April 2011. More depressing for silver bulls, silver prices retreated for all but one day in November, ending the month down 9.75%. Gold also traded near its lowest levels since 2010. So, it’s really, really safe to say silver will not enter a bull run until at least 2016.
Even then, it depends on whom you ask. Some expect gold and silver prices to struggle until at least 2017, with the gold-to-silver ratio to remain near 75. Estimates for average gold prices in 2016 remain around $1,150 an ounce, with an increase to $1,200 an ounce in 2017. Estimates for silver prices average $15.00 an ounce in 2016 and $16.00 an ounce for the grey precious metal in 2016. (Source: “Gold To Drag Silver Prices Down In 2016, 2017,” Kitco, October 9, 2015.)
Silver prices have been hit the hardest among precious metals due to declining demand for the metal for industrial applications. That includes solar panels, water purification, and windows and glass. Silver is also used in medicine, nanotechnology, batteries, electronics, catalysts, and the automotive industry. Additionally, there’s the fear that demand for base metals like silver will be down on weak economic signals out of China.
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On the other hand, investment demand for silver remains strong. The U.S. Mint has broken an annual record for Silver American Eagle coins. At the end of November, the U.S. Mint sold 44,666,500 ounces of American Eagle silver coins. By the end of November in 2014, it had sold 44,006,000 ounces. November sales were also up 27% month-over-month. (Source: “Bullion Sales/Mintage Figures,” United States Mint, last accessed December 8, 2015.)
Sales at the Royal Canadian Mint were up 85% during the third quarter, propelled mainly by sales of silver and gold bullion. Bullion products and services generated revenues of CA$840.4 million, which is more than double the $409.8 million recorded in the third quarter of 2014. Silver Maple Leaf coins were particularly popular and in total, the Mint has sold nearly 10 million ounces of silver bullion this year. (Source: “Royal Canadian Mint Reports Another Strong Quarter For Collector Coins,” Royal Canadian Mint, November 26, 2015.)
On the heels of increased demand from investors is the sharp decrease in production from leading producing countries like Canada. During the first nine months of 2015, silver production from Canada plunged 30%, declining from 374,184 kilograms in 2014 to 285,953 kilograms. Silver mine production in the U.S. has also been declining. (Source: “Production Of Canada’s Leading Minerals,” Natural Resources Canada, last accessed December 4, 2015.)
While estimates vary, there is no doubt there will be a sharp deficit in the silver market in 2016, and not just because of investors. Will it be enough to send silver prices higher in 2016? Probably not significantly higher, but certainly higher.
What else? Rising interest rates might undercut precious metal prices in the near-term, but uncertainty about the U.S. election in November could boost silver prices in the second half of the year. This may be especially true if it looks like the Republicans are still considering one-time-longshots like Donald Trump and Ted Cruz.
That’s the type of uncertainty that could make stocks even more volatile and send the precious metals, including silver prices, higher.