The price of silver is historically more volatile than that of gold, which presents an opportunity for savvy investors in precious metal to make quick profits with regular trades. Or so it seems. Indeed, those with a large silver holding could potentially have made a killing from a recent spike, from which saw silver rose from $15.58 per ounce on 12 December 2017 to $16.75 for an ounce on 7 February 2018.
Will it rise further in the short-to-medium-term future? There’s no way of knowing for sure. Still, investigating the factors that typically affect silver prices can give away clues. Whether to act on those clues is a different question, however. You'll need to be confident in both your conclusions and the reasoning behind them. If you have both those checked off, you'll be in a better position to decide whether it’s a good time to buy silver bullion or sell the precious metal.
Below, I round up three key indicators of where silver prices might head in the short-term future. These are the economic picture, supply demand and previous market movements, and the gold-silver ratio. I conclude with what the experts are thinking to give you a clearer picture of the marketplace right now.
Many people invest in silver and other precious metals purely as a hedge against a poor economy. During a market downturn, equities such as common and preferred stocks, real property and even many global currencies are viewed as highly risky. Historically, many of those - especially overvalued ones - have plummeted quickly.
Rather than focus on which stock or countries are most likely to default, let's have a look at what happens to silver and why. Is the value of silver as vulnerable to economic conditions? Not nearly. Despite significant economic and industrial use, investors flood to it along with gold during poor economic conditions. The increased demand has historically led to prices rocketing.
An easy way to gauge where silver's short-term stands is by looking at the US dollar. Many people see the dollar as a representation of the US economy. However, some argue that that's not really the case. Think about it. Does a strong US dollar - relative to other currencies - really represent the well-being of the US economy?
Anupam Manur takes issue with the idea “a weak currency is the sign of a weak economy, and a weak economy leads to a weak nation” is wrong. He suggests that authors of The Dollar Crisis, Paul Simon and Ross Perot missed a big chuck of the pie. China, India, and Japan are massive economies. Yet, their currencies are hardly near where the dollar stands.
So instead, we need to look at broader factors such as trade balances and the movement of capital, and factor into account central bank policies. While at first glance, there’s no sign of the US economy qua U.S dollar declining, there are more questions to ask. We need to do so because the US economy is historically the most directly inverse to precious metal prices.
On the one hand, the economy has grown during Donald’s Trump first year in office, while U.S stocks have enjoyed a record run. There are no signs of this growth suffering a dramatic reversal, suggesting a momentous spike in silver prices isn’t currently on the cards. According to this point of view, answering is silver going to go back up in the near term is an exercise in futility.
On the other hand, the recent market conditions have put a stop on many investors irrational exuberance in current markets. Gluskin Sheff's David Rosenberg has some interesting things to say on that point.
According to him, Wall Street's huffing and puffing about recent market moves missed something special. According to him, February 8th saw the S&P 500 index move into a market "correction," down over 10% since January. What he found striking was that 10-year T-Bills went up .16% in yield. While this is a murky sign, it should befuddle you of because yields historically decline during major pullbacks such, i.e. 2008. Yet, he points out, this is occurring during a market decline!
Let me say that again. Government debt is not getting cheaper despite a declining stock market! Rosenberg notes how this happened in the crashes of 1987 and 1994. Much like those times, the Federal Reserve has been tightening policies, and people were concerned over an overvalued economy as well as diminishing returns in general. So what happened? Well, in one year you got a massive correction, and in another "massive volatility and rolling corrections."
The output of silver has fallen under hard times in recent months, but is still widely predicted to achieve a surplus in 2018. Demand has been hit in recent years, partly due to India’s crackdown on bullion imports, but has been widely tipped to rebound, led by electronic and photovoltaic offtake. If supply and demand grow in equal measure, this is unlikely to have a huge impact on silver prices.
But if you look to previous market movements, you find an equally interesting picture. Silver is on an upturn at present, and there is some way to go before it reaches a one-year high of $18.52 per ounce, which suggests now might be a good time to buy.
The spot price has only peaked over $20 once since 2014. Despite significant evidence of a bull run that impressive any time soon, volatility could prove useful. The volatility of the silver market does lend itself to surprising highs and lows without forewarning. A price growth to above $20 in the current market would certainly not surprise at least a few key players.
For those interested, the gold-silver ratio continues to increase and has moved over 81. This suggest that when the time comes, silver may be a much better call than gold.
Expert opinions on any financial market should always be taken with a pinch of salt. They don’t have access to a crystal ball any stronger than yours. So it’s always recommended to do your own research into a market. Having said that, their comments can help you learn plenty about how markets typically behave. That's because consensus opinion can be valuable in a market as sentiment-driven as precious metals.
Our choice pick here is US Global Investors CEO Frank Holmes. He recently predicted a spike, based on the fact that investors often to turn to silver once gold prices top $1,300 per ounce, as they have at present.
A Golden Arrow Resources marketing specialist has tipped silver to follow the mining industry. Mining has been forecast to bumble along for a while before a massive spike. The studies cited here suggest there is no concrete evidence of that massive spike arriving in the coming months. Nevertheless, the only research you should ultimately rely on when investing is yours.
At Global Bullion, we buy all sorts of precious metal bullion through our sister store Muzeum, including gold and silver.