Silver Price at a Seven-Year-High
This week, the silver price broke out, quickly crossing the twenty-dollar level which was the one-year-high. It topped as high as $23.40, a record of about seven years. The gray metal has converted from an underperforming precious metal in an outperforming one in days. Year-to-year, it rose 37 percent, while gold only 31 percent.
Same as gold, silver got help from a huge amount of liquidity-expanding measures by central banks, increasing the money supply. (“Money printing”, we may say so.) And the huge uncertainty that accompanies the coronavirus-crisis. Also, in developed market countries is almost impossible to reach some risk-free interests. While inflation stays in the positive territory. Negative real interest rates have always been friends with precious metals. And there is little to no chance of raising interest rates in developed countries in the coming years.
But, silver is not only a safe haven and investment target. It’s also an industrial metal to a greater extent than gold. Industry demand used, of course, fall during a recession and restart when economic growth also revives. But many other factors affect the silver market. Such as jewelry demand, the weakening dollar. Or the temporary closure of some Latin-American mines for the coronavirus pandemic.
Silver Lags First, Speeds Up Later
If we look at the long-term chart of gold and silver below, we see that gold has performed better in some periods and silver in others. We can often read that in the past, silver usually started moving later than gold. Many times only in the late stages of the precious metal bull market. But then, silver goes much further, outperforms gold.
This happened in 2011-2013, when gold rose about threefold and silver, fivefold. There is no guarantee that this will happen now. But in the big picture, silver appears to be relatively cheap. The high value of the gold/silver ratio is a sign of it. This indicator is by 83 now, while the long-term average was between 50 and 60. (But in March, it reached approximately 125, too.)
How Long Does The Precious Metal Show Last?
After the previous financial crash, also known as the Lehman Brothers crisis, there was a bull market in precious metals for three to four years. A similar process started in May 2019, but we don’t know how long the trend will be. Maybe the economy is recovering and precious metals are quickly forgotten. It could also be a crisis of overproduction, a shortage of demand, and deflation instead of inflation.
Maybe all bullish silver price forecasts will result mistakes. It is also possible that a huge amount of money entering the economy will cause large asset price bubbles. So, exploding stock prices will push your precious metals into the background. Everyone will want to buy stocks or real estate investments. A cryptocurrency rally may also distract from precious metals. Younger generations rarely buy metals, Bitcoin is more popular for many of them. Sometimes, Bitcoin is also referred to as digital gold.
What Do Silver Price Forecasts Tell Me?
If the general opinion on the market is that the silver price will be $28 by the end of 2021, then it’s time to reach $22-$23 now. Because in this case, investors are already buying it and sending up the price. But not up to $28. Because everyone wants to earn at least 15-20 percent on it. So is how short- and medium-term speculators function.
An old saying came to my mind: 2 x 2 in the markets is not four, but 3+1, or 5–1. The forecasts will like fulfill after huge fluctuations, high volatility. For example, the price of silver will be $50 one day. But before that, it may drop to ten first, then jump to 40, and then drop to 16 again. Turbulence is expected, please fasten your seat belts! (And avoid high leverage.)