Silver Prices: 3 Reasons Why Silver Prices Could Soar

silver prices 2016Silver Prices Could Skyrocket in 2016

Silver prices continue to face scrutiny, but investors shouldn’t be too bothered by it. Instead, pay attention to the fundamentals of the gray precious metal market; they suggest silver prices are undervalued.

You see, in the silver market, basic economics are at play. Demand is surging and the supply is expected to plummet. In fact, in some cases, it already is plummeting downward. This is a perfect recipe for higher silver prices ahead.

Take a look at the chart below that shows the movement in silver prices over the last few years:

silver spot price chart

Chart courtesy of www.StockCharts.com

Looking at the chart above, one would think demand for silver is anemic and the market is flooded with the gray precious metal, as prices have plunged more than 50% in just a couple years.

This is not the case and don’t let anyone tell you otherwise!

To give you some perspective, consider the sales of silver coins by the U.S. Mint. In 2012, the Mint sold 33.74 million ounces of silver in American Eagle coins. In 2013, sales of these one-ounce silver coins jumped to 42.67 million. In 2014, the U.S. Mint sold 44 million ounces of silver, making a then record-high. So far in 2015, the U.S. Mint has already sold 44.8 million ounces of silver in American Eagle coins, which is more than the previous year’s sales and there are still a few days left until 2015 ends. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed December 4, 2015.)

Seeing the sales at the U.S. Mint, it seems as if lower silver prices are actually driving investors to the market, literally the opposite of what we were told when silver prices were going lower in 2013 and 2014.

Mind you, demand for silver isn’t high at only the U.S. Mint; we have been hearing a lot about silver demand from other mints around the world, as well.

Next, we have the supply situation. When you look at the supply side (mine production), it’s clearly plunging and this phenomenon shouldn’t go unnoticed.

Take Canada as just one example. In the first nine months of 2015, silver mine production from Canada amounted to 285,953 kilograms. In the same period a year ago, this figure was 374,184 kilograms. (Source: “Production Of Canada’s Leading Minerals,” Natural Resources Canada, last accessed December 4, 2015.) In the U.S., silver mine production has also declined in 2015.

Understand this: Demand and supply aren’t the only factors suggesting silver prices are going higher. Investors need to pay attention to the gold-to-silver ratio as well. This ratio simply refers to how many ounces of silver are needed to buy an ounce of gold. Once again, check out this long-term chart below, this time of the gold-to-silver ratio since 2006.

gold silver spor ptice chart

Chart courtesy of www.StockCharts.com

The last time this ratio was at a similar level, we saw a massive rally in silver prices for the next few years.

Silver Prices Outlook for 2016

It’s not just difficult, it’s impossible to time exactly when silver prices will turn. As it stands, paying attention to the fundamentals is key to coming close. These fundamentals are pointing towards a solid upside move. The supply-demand situation is distorted and the gold-to-silver ratio suggests silver prices are severely undervalued.

For the rest of 2015, silver prices will be dictated by the Federal Reserve’s take on monetary policy and investor sentiment. In 2016, don’t be shocked if it’s a great year for the gray precious metal.

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