Silver has long been in the shadow of gold in terms of being the most desirable precious metal, but with a resurgence in the global economy we could be about to see strong growth in silver prices.
Experts believe that the current bullish stock market cannot keep growing at the rate it is, and as soon as it falters then gold and silver will step up to fill the gaps left for investors. If silver can break the $20 per ounce mark (currently at $17.25) then market pessimism will cease and demand will rally.
Silver has been on a downward trend since its last peak in 2011. During the last six years it has decreased in value by 66%, a classic case of a Bear market – one where investors are pessimistic and losses are anticipated, which in turn breeds more pessimism.
The current bear market in silver is the longest ever, meaning a breakout from this trend is overdue. Market data shows that usually there’s approximately a 100% increase in silver price in the 12-15 months after the end of the bear market.
A 10 year price chart showing the rise and fall of Silver in USD per ounce since 2008
Silver at the time of publishing this article is at £12.20 / $17.24 / €13.87 per ounce. In Pounds and Euros this is a slight decrease in value, while in Dollars it’s a marginal increase. There was 2.3% price spike late last week, but prices have since returned to their previous position.
The slight ups and downs in silver price are likely to continue regardless of the success of gold or the stock markets. The global mine supply of silver fell 1% in 2016 and a further 2% in 2017. Worker disruptions in South America and a reduction in spending from the primary producers have seen a reduction in supply, which in turn should drive up prices, but demand plays a pivotal role.
A report by The Silver Institute highlighted the weakness of silver in 2017, stating that global coin demand almost halved to 73 million ounces in 2017, with much of the drop a result of the weak US dollar, buoyant stock markets, and a rapid surge in demand for cryptocurrencies. As the dollar rallies, markets peak, and cryptos continue to falter, the expectation is for a return in demand for silver bullion as an investment.
Demand is also increasing in other industries. China’s customs authorities reported a 28% rise in silver demand in 2017, bringing their total to nearly 4,300 tonnes of the precious metal – a seven year high for the Asian nation. India too has increased its demand, up by an incredible 90% to 5,750 tonnes – their third highest total in the last decade. Both countries are keen to reduce pollution levels by switching to renewable solar energy, but India’s jewellery industry is also seeing a rise in demand as gold prices remain too high for the weak Rupee.
Today's prices for Silver per ounce in USD
2018 should see growth for gold and silver demand and prices, though to what extent is hard to say. Goldman Sachs recently stated that they expect silver to return to its typical market trends this year, which will in turn push it to outperform gold in the next few months.
The demand for silver is there across the industries to help silver come back. Given the improved state of the world economy and the inevitable bubble burst for the stock markets it’s all very promising. The question is what will stop these price rises?
One hurdle is the United States. With China increasing their demand for silver for solar panels (a production increase of 50% according to Commerzbank), the USA has imposed import tariffs on washing machines and solar panels, with the aim of boosting home-grown businesses. The risk of a potential trade war is high, and the impact on the demand for silver is yet to be seen. The dispute could see the US Dollar suffer, or the US economy could be bolstered by the help given to native companies and slowly improve growth, which in turn would stabilise the currency and keep precious metal prices lower.
Swiss refiners Heraeus published their annual forecast recently, which said that the rapidly growing photovoltaic industry would boost prices but not be sufficient to increase the price of silver far beyond its current position. The metal experts predict silver to fluctuate between $15.25 and $18.00 per ounce throughout 2018, with prices tailing off later in the year as the Federal Reserve stabilises the US Dollar.
Silver prices will naturally rise in 2018, even by a slim margin, but investors are sitting ready in the event of a stock market crash or further depreciation of the US Dollar. If one goes down, the metal prices go up. If both go down…