Silver Extends Losses for a Record Fourth Consecutive Year
Silver suffered another bad year in 2015, with silver prices down more than 12.0%, closing out the year at around $13.80. That represents a record fourth consecutive year of declines and erased all gains since the summer of 2009. What does the future hold for precious metals like silver and gold in 2016?
Investors Abandoning Silver as a Hedge
Silver bulls are not having a good time right now, as conditions that would otherwise help prop up silver prices aren’t doing so.
Precious metals like silver and gold are used to hedge against economic uncertainty. If there was ever a time for investors to pour into silver and gold, it’s now, when economic uncertainty abounds.
China, the world’s second-largest economy, is in full economic retreat. The Brazil, Russia, India, and South African economies are not doing well, either. Neither is the Japanese economy nor most of Europe. The U.S. is doing OK, but how long can that last? The U.S. is not an economic island.
The World Bank forecast global gross domestic product (GDP) growth at just 2.9% in 2015, down from a previous forecast of 3.4%. It also predicts U.S. GDP will climb a miserly 2.5% in 2016, with European growth of 1.7% and 1.3% growth in Japan. A resource-rich country like Canada is forecast to expand at just 1.7% in 2016 and 2.1% in 2017. (Source: “Anemic recovery in emerging markets to weigh heavily on global growth in 2016,” The World Bank, January 6, 2016.)
The U.S. dollar may be strong, but that’s only because the rest of the world is doing so poorly. It’s pretty hard to champion the greenback when corporate earnings and revenues are in decline. The S&P 500 cannot rebound and climb higher when it’s posting consistent back-to-back-earnings and revenue contractions.
Silver Prices Sitting on the Fence
Unlike gold, silver is more than just a hedge against economic uncertainty or a material for making jewelry. Silver is both a precious metal and an industrial metal. As an industrial metal, you’ll find silver in batteries, dentistry, LED chips, medicine, nuclear reactors, solar energy, semiconductors, touchscreens, water purification, and many other industrial products.
And it will only be needed in those industries if the global economy is doing well. (It’s not. See above for a refresher.) Simply put, right now, it’s a difficult time to play silver whether you’re a bull or a bear.
In 2016, many analysts, it seems, see silver prices averaging between $14.00 and $14.50 an ounce. That’s pretty well right in the middle of where silver’s support and resistance levels are.
Looking at the following chart, silver prices have been trending steadily lower since hitting a new high in the spring of 2011. Since that time, silver has lost more than 70% of its value.
Over the longer term, silver prices have shown solid support around $10.00. For silver bulls to get excited, silver prices would need to push through the $18.00 resistance level.
Chart courtesy of www.StockCharts.com
Silver Mining Penny Stocks to Rebound
If you’re a silver bull, 2016 might not be the year you get revenge on precious metal bears. But, it could be a great time to set yourself up for strong gains. The oil glut and weak economic conditions have pushed many stellar silver mining companies into penny stock territory.
And not because they deserve to be. But because the conditions just aren’t there for silver. But they will be. The stock market cycles up and down. Always has; always will. Precious metals will do likewise.
Three great silver mining companies that have fallen into enviable ranges (for investors, not the owners) that are worth adding to your radar include Pan American Silver Corp. (NASDAQ:PAAS), Goldcorp Inc. (NYSE:GG), and Silver Wheaton Corp. (NYSE:SLW). Pan American Silver Corp. and Goldcorp are both under $10.00, and Silver Wheaton is on its way.
It’s not a great time to be a silver bull—but it will be.