2016 silver price predictions: Look for a recovery

Four years ago, analysts everywhere were making predictions about the price of silver. Now, it’s hard to find anyone talking about it. Paul Mladjenovic, author of Precious Metals Investing for Dummies, believes prices for the white metal will bolt higher in 2016, though. Indeed, he believes silver has a “strong chance at hitting” $25 to $29 next year (source).

Adam Koos, president of Libertas Wealth Management Group, agrees without giving a specific price target. He expects silver to start a bull run late in 2016. “Take a little hiatus until 2016 … when the US president will be a huge question mark, US stocks will most likely pick up in volatility and any rate increases will have already been priced into the metals,” he told MarketWatch.com this summer.

Kunal Shah, head of commodities research at Nirmal Bang Commodities, believes silver prices should settle between $16.95 and $17.40 per ounce by the end of 2016. “Industrial demand has remained very strong from electrical, solar and various industries so we recommend that any decline in silver prices now should be used as excellent buying opportunity,” he says (source).

That falls in line with silver price predictions from a Reuters poll over the summer. Polled analysts expect silver prices to recover to $17.21 an ounce in 2016 (source).

RBC analysts expect silver prices to be around $19 an ounce by 2018 (source). That’s roughly 20 percent higher than today’s silver price of $15.50. That’s not exactly a big surge. RBC is, however, bullish on a handful of gold and silver stocks. While silver prices have plummeted, stocks in the sector have gotten hit even harder. They should start recovering rapidly as the price of silver drifts higher.

One of the biggest silver bears I can find is Jing Pan, a research analyst and editor at Lombardi Financial. Pan believes we could see a squeeze next year that might push silver prices up to $31 an ounce (source). He cites decreased mining activity, elevated demand and a skewed gold-silver ratio as the major drivers. Today’s gold-silver ratio hovers around 72:1. If we get to 35:1, we’d be around Pan’s target price, and that’s still far higher than the “natural” gold-silver ratio of 17:1.

Interestingly, 2015 is expected to be the first year in 12 years that silver mining output will actually decline. “We’re just not seeing the investment in new mine capacity that would be needed to sustain continued record peak production,” Andrew Leyland, an analyst with GFMS, told the Wall Street Journal. GFMS forecasts silver prices will average $16.50 an ounce in 2015, and rise to $17.50 an ounce in 2016.

Photo credit: Loopack.

Top 10 gold price predictions for 2013

My personal opinion? Gold likely bottomed at $1,200 recently, but don’t expect spectacular gains through the end of the year. Precious metals need a big catalyst to move higher aggressively.

-Posted by Alejandro Guillú Mendoza

Introduction
Many people around the world want to know the answer to the question, where are gold prices going?

I invested many hours browsing the internet searching for answers to this question to save you time and money because time is money.

Have another question? Drop me a line. I only answer questions regarding money. Please don’t ask me where your lost dog is or why your boss fired you.

Here are my findings when I searched for the Top 10 gold price predictions for 2013:

1) $1,487 Morgan Stanley

The 15th-leading investment services company in the world downgraded its forecast 16% to $1,487, according to the Wall Street Journal.

Peter Richardson said speculation of selling by European Central Banks and nervousness over the possibility that the United States of America Federal Reserve will end its QE earlier than December 2013 are also top contributing factors.

2) $1,530 David Morgan

David Morgan is the publisher of The Morgan Report and creator of silver-investor.com which has been featured on CNBC and Fox Business.

Bernice Napach of the Daily Ticker has written more about this. You can watch the seven-minute video here.

3) $1,550 Goldman Sachs

The second-leading investment services company in the world downgraded its six months forecast to $1,600 from $1,805 and its twelve months forecast to $1,550 from $1,800, according to the Wall Street Journal.

The recent sell-off was “likely excessive,” and it has “exposed a quickly waning conviction in holding gold positions, especially ETFs.”

4) $1,637 Deutsche Bank

The bank lowered its forecast last month 11.8% to $1,637, according to Fox.

“Given our forex strategist’s expectations for continued strength in the U.S. dollar and our U.S. economist’s forecasts for an acceleration in gross domestic product growth going forward, we expect that gold will struggle to appreciate meaningfully against the U.S. dollar.” – Daniel Brebner

5) $1,700 HSBC

The bank lowered its forecast 3.5% from $1,760 to $1,700, according to Reuters.

“Later in 2013, we expect monetary easing, escalating currency wars, and geopolitical tensions to support gold prices up to $1,800 an ounce.”

“Increased inflationary expectations should buoy gold.”

“Any price drop below $1,600 per ounce may stimulate jewelry, coin and small bar retail demand in price-sensitive economies.”

“Further ETF or Comex liquidations could put additional pressure on gold prices.”

6) $1,880 Aubie Baltin

Check out this article: 5 reasons Gold Will Set an All-time Record in 2013. I’m not sure I agree, but the title’s pretty bombastic…

7) $2,200-$3,000 Jason Hamlin

Jason Hamlin is the President and Founder of GoldStockBull and more importantly, one of the Opinion Leaders in the Gold & Precious Metals category at Seeking Alpha.

Pent-Up Potential For Precious Metals in 2013 is an interview by The Gold Report where he discussed his prediction.

8) $10,000 Societe Generale

“With some rare exceptions … analysts don’t like to stand out from the crowd. It is dangerous and career-challenging. In that vein, we repeat our key forecasts of the S&P Composite to bottom around 450, accompanied by sub-1% US 10-year yields and gold above $10,000.” – Albert Edwards

Read more in Doomsday? SocGen Predicts S&P to 450, Gold at $10,000 by Sam Mamudi.

9) Franklin Templeton

The tenth-leading investment services company in the United States of America does not offer a specific numeric forecast. However, they believe the price of gold will go up. You can read their recent financial analysis here.
Keep in mind only eight investment services companies in the world make more money than them.

10) Hebba Investments

Hebba Investments is one of the Opinion Leaders in the Gold & Precious Metals category at Seeking Alpha and although he does not offer a specific numeric forecast, he believes the price of gold will go up. You can read his recent financial analysis here.

My personal opinion? Gold likely bottomed at $1,200 recently, but don’t expect spectacular gains through the end of the year. Precious metals need a big catalyst to move higher aggressively.

How low can gold prices go? Has the rebound arrived?

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. Things have been shaky ever since.

Introduction

For many years, people have relied on gold as being a stable and worthwhile investment in an otherwise constantly fluctuating market. Back on Sept. 5th of 2011, gold reached an all-time high of $1,900.30 per ounce and was considered a mandatory component in every investor’s portfolio. Unfortunately, it dropped drastically to $1,690 the following year and is currently being sold at only $1,340 an ounce. The price of gold has been dropping quickly since it hit its peak two years ago, but most investors are more interested in the question: How far will it fall before it starts to rebound again?

Gold Fell to $1380 in Mid-April

On April 15th, the price of gold dropped $140 in one day when Goldman Sachs drastically reduced its average price forecasts and recommended a short Comex gold position for their clients. This immediately brought the price down to $1395 per ounce, which dropped even further the following day to $1380. Fortunately, less than two weeks later, Goldman Sachs decided it was time to close out the gold shorts that were previously recommended and the price of gold has been wobbling between $1,200 and $1,400 an ounce since.

Lower Price Expectations for Gold

The recent collapse in gold prices, however, caused the UBS investment bank to downgrade its price expectations for all precious metals. Gold has displayed great resilience at these lower levels in the past, which has prompted several long-term holders to actually add to positions. There are also some strong signals of converting ETFs and metal accounts into allocated holdings. For additional information on the views of the UBS in regards to the decline in gold prices; please read “Gold market needs time to heal.”

Gold Should Go Up from Here

Forecasted gold prices for the end of the year range between $1,480 and $1,700 per ounce. HSBC has the most optimistic estimate for the year at $1,700, and Mitul Kotecha (Credit Agricole’s head of foreign exchange strategy) is predicting that gold will finish the year at $1,480 and drop to $1,318 in 2014. Most experts feel gold has dropped as low as it will go in the near future, and a MarketWatch survey of ten different forecasts shows that all predictions for the average price in 2013 are higher than its current price. In the same survey, over a half of the 2014 price predictions are also above the current price of gold.

Although gold is down almost 25% since it reached its peak in 2011, there are several indicators that it won’t drop much further. It has been rebounding the last few weeks and should continue on an upward trend for the remainder of 2013. It may drop back down again in 2014, but not as low as it reached in the middle of April.

The real reason 2013 Silver Eagles hit an all-time high in January

The U.S. Mint probably isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could otherwise have been low.

Because the silver investment market is so small, it’s particularly vulnerable to hype. That’s exactly what the commodities research firm CPM Group thinks is happening now as investors trumpet the “incredible” demand for silver coins in January. While the U.S. Mint did announce all-time sales records for 2013 silver eagles in January (with 7,498,000 coins sold), CPM Group argues that’s just a hold-over of pent-up demand from earlier in the winter.

“All of this talk about a shortage of silver is irrational and not supported by readily available market data,” CPM Group says in its latest report.

Specifically, the company cites worries over the Fiscal Cliff in November and December as driving up demand for American Eagles. Since the Mint sold-out of coins in both November and December, that demand rolled forward into January driving sales up to record levels.

CPM Group’s been painting a pretty bleak picture of silver prices going forward. The commodities research firm believes prices will head lower over the next decade (through 2022) rather than higher as most silver price prognosticators would have you believe.

I’m not ready to make that assumption, but there are lessons to be learned from CPM Group. Mainly that the U.S. Mint isn’t the best gauge of market demand for silver. It’s too easily overwhelmed by demand, and that pushes sales forward into months when demand could have otherwise been low.

Silver will surge 400% through 2016, Williams says

A British fund manager looks for silver prices to peak in the third quarter of 2015.

Ok. I’ll admit I’m not entirely sure who Ian Williams is. This UK article describes him simply as “a City-based asset fund manager.” Still, he’s rather brazen in his predictions for the white metal.

Silver is destined to enter a “sustained bull market” in the coming weeks. Mr Williams believes the price of silver will increase fivefold between now and 2016, with a peak expected in the third quarter of 2015.

Good news for silver bulls if Mr. Williams can be trusted. More at livecharts.co.uk.

IBD likes platinum; not gold or silver

Platinum has outperformed gold and silver in the short-term and over the past year. That bodes well for the future of the industrial metal.

And the newspaper gives five reasons why:

  1. Platinum has outperformed gold and silver in the short-term and over the past year.
  2. Strong car sales mean higher platinum prices, particularly since 40 percent of mined platinum goes into catalytic converters.
  3. Mine strikes in South Africa have seriously dampened platinum supplies.
  4. Mining costs have out-stripped platinum prices for a lot of companies – a fact that will likely lead even more producers to cut their platinum output.
  5. Growth in China means more platinum jewelry sales.

Source: Investors.com.

PSLV vs. SLV: Battle of the silver ETFs

Both SLV and PSLV accomplish the same goal: exposure to the spot price of silver without actually buying silver. In the end, then, it comes down to two factors…

While they’re both silver ETFs, the iShares Silver Trust ETF (NYSE:SLV) and the Sprott Physical Silver Trust ETV (NYSE:PSLV) operate very differently. Here’s how they work:

The iShares Silver Trust ETF: The fund buys and sells silver in an attempt to have it’s share price match the value of its bullion holdings. If the value of the fund’s shares rise, iShares buys more silver. In theory, the fund’s market cap should equate to the fund’s silver holdings (less fees and liabilities).

Sprott Physical Silver Trust ETV: The Sprott trust operates much like the iShares ETF with one major exception, shareholders have the ability to exchange their Sprott shares for physical silver bullion on a monthly basis.

Although they operate similarly, the two ETFs have been on divergent paths year-to-date with the PSLV down 10 percent and the SLV up 4.8 percent. During the same time, the price of spot silver is up 2.54 percent on the year. It’s clear then that while the ETFs are designed to track an underlying commodity, they definitely come with margins of error.

And that’s actually making PSLV look quite attractive. In the past, the fund has traded at a premium of up to 35 percent above the price of spot silver (apparently investors like the fact that their holdings could be exchanged for physical silver). Today, PSLV’s trading at a premium of just 4.95 percent to the silver spot price.

There are benefits to both the ETFs approaches, though. First, the arguments for PSLV:

1) Redemption. Obviously, investors can choose to exchange their shares for physical silver – something that could come in handy if we do experience a currency crisis in the West.

2) Tax perks. If you plan to hold your silver ETF shares for more than a year, you can claim any appreciation as a long-term capital gain. That’s good for a 15 percent tax rate. Profits from SLV will set you back 28 percent under the current tax code.

3) Safety. The Royal Canadian Mint stores bullion for the Sprott trust. As Sprott writes on its web site, “The Mint is a Canadian Crown corporation, which acts as an agent of the Canadian Government, and its obligations generally constitute unconditional obligations of the Canadian Government.” SLV’s bullion is stored and managed by a private company (JP Morgan Chase: NYSE:JPM) with no government backing (unless, of course, you count the tacit promise of a bailout when times get tough).

Now the arguments for the SLV:

1) Low or no premiums. Since SLV doesn’t have to manage the costs associated with fulfilling delivery, the fund’s holdings trade at a much smaller premium to the price of silver. That’s important as premiums are subject to the whims of potential investors. As I wrote above, PSLV has traded with a premium as high as 35 percent above the price of silver in the past. You may as well go buy and store your own bullion at those prices.

2) Higher volume. A lot of silver ETF investors have no intention (or at least they don’t foresee the desire) to redeem their stock holdings for physical silver. For them, buying and selling shares is simply a vehicle to make money. SLV wins out if that’s your goal as the fund is much more liquid than PSLV. On an average day, more than 1.7 million shares of SLV trade hands compared with less than 100,000 shares of PSLV. This makes going both long or short the SLV much easier.

SLV Vs. PSLV: Which one’s better?

Both funds accomplish the same goal: exposure to the spot price of silver without actually buying silver. In the end, then, it comes down to two factors: security and taxes. If you know you’re going to hold your shares for more than a year (which entitles you to tax benefits) and you value the security of knowing your ETF shares can be redeemed for actual silver, buy PSLV. For all other traders, the SLV is perfect.

Related

Three reasons $6,000 gold makes sense

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about.

Despite accusations that it’s a worthless chunk of metal, gold prices have risen for the past 12 years. That’s more than a decade of net buying, and those buyers must have a good reason to keep pushing up gold’s price.

In general, I break gold buyers into two camps: defensive buyers and offensive buyers. Defensive buyers are temporarily trying to protect their wealth from effects of inflation. Offensive buyers are the so-called “gold bugs” – the investors who believe that we’re in the midst of a financial crisis that can only be resolved in one way: a string of sovereign defaults. Those offensive buyers don’t plan on selling until we have some new, multi-national gold-backed monetary system.

If we look at gold from the perspective of an offensive buyer, their predictions of $6,000 gold start to make some sense. Here are three reasons why $6,000 gold just might come about:

1) A solid track record. $6,000 sounds like an awful lot of money, but that’s actually just 4 times higher than gold’s current price around $1,590 an ounce. During the 1970s, gold went up 24 times. If we look at gold’s starting point 12 years ago around $250 an ounce and multiply that by 24, we end up at $6,000 an ounce. Gold went up that radically in the past, so it can surely happen in the future.

2) The Dow/gold ratio. Historically, the Dow/gold ratio tends to revert to 2:1. At the time of this writing, the Dow Jones Industrial Average stands at 12,835 and gold’s selling for $1,591. That’s a Dow/gold ratio north of 8. If the Dow were to stay at its current levels (floundering sideways in the years to come), and the Dow/gold ratio were to return to historical means, we’d be looking at gold at $6,000 an ounce.

3) Sovereign defaults seem imminent. It’s hard to believe there are countries with debt that rivals our own, but Greece is under the magnifying glass. The Eurozone “is on a path that leads to eventual dismantling,” Peter Tchir of TF Market Advisors wrote in a note to clients on Monday (per IB Times), and Greece looks like it’s poised to be the first domino that falls. Sunday’s election in the country is still yet to yield a coalition government. That’s prompted warnings from the EU “that Greece would get no more payments from the $170 billion deal approved in March if it did not enact roughly $15 billion in cuts by June” (per USAToday).

If Greece stops getting bailout cash, the country would slide into default within weeks. That might not happen in June, but it seems imminent, and it would certainly raise doubts about the future of the Euro.

If people start doubting the future of a currency, gold will get a shot of adrenaline that’ll push it up rapidly. Throw a few currency defaults into the mix and there are few places besides gold to stash your cash. Viewed in that light, $6,000 gold seems more and more likely.

Related

Three signs silver prices have further to fall

While we’re certain the 12-year bull market in precious metals isn’t over, we do think there could be more pain for silver investors in the near-term. Here’s why…

A month ago, an ounce of silver was worth $33. Today, that same ounce is worth $29.50 – a drop of more than 10 percent. While we’re certain the 12-year bull market in precious metals isn’t over, we do think there could be more pain for silver investors in the near-term. Here’s why:

1) The Gold/Silver Ratio. The gold:silver ratio has been trending up since early March, and that trend probably won’t stop until the ratio re-tests January’s highs around 57:1. Why? Because swing and momentum traders themselves help cause the fluctuations in the gold:silver ratio. So long as the ratio is showing a clearly defined trend, and it’s not nearing any key resistance levels (or psychological barriers), those swing traders are going to short silver. Check out the steady upward climb in the gold:silver ratio:

[Source: Seeking Alpha]

2) Long live the dollar. The greenback can’t seem to do anything wrong. That’s despite explosive growth in True Money Supply (or the sum total of all the cash, deposits and notes that are floating about in our economy). Just check out this chart from Mises.org:

During ordinary economic times, you could expect the yields on U.S. bonds to spike in the face of such aggressive monetary easing. Instead, the dollar looks stable compared to the financial situation across the pond.

The Eurozone “is on a path that leads to eventual dismantling,” Peter Tchir of TF Market Advisors wrote in a note to clients on Monday (per IB Times). “Greece restructured debt, made different rules for different holders, and yet, the new bonds trade at 20% of par.”

Investors are telling the Eurozone countries that they no longer believe there’s a way out. That threat of a Eurozone breakup has bought the dollar some street cred that it probably shouldn’t have – and that’s bad for silver prices.

3) Even die-hard silver bulls are losing some of their excitement over the white metal. “While I do remain very bullish on silver, I must also admit that for the first time I can envision a scenario in which silver does not reach $100,” writes Simit Patel at Seeking Alpha. His reasoning? Gold will likely outperform everything (silver and stocks) if the equity markets remain soft.

Of course, all of the arguments above have me thinking that now might be the perfect time to buy silver. I’m not alone either. Check out my recent post Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012. Just remember that if you do buy, though, you need to be able to hold onto the metal in the face of near-term weakness. Prices may be higher in three months, but what happens between now and then might not be pretty.

Related

Will mushrooming supply crush gold and silver prices in the years to come?

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply.

One of the most common arguments bears levy against gold and silver is the fact that record prices mean more gold and silver mines. With those mines, they argue, comes a glut of supply that could crush the precious metals markets.

One of the leading voices in this debate is Dr. Paul Walker of precious metals consultancy GFMS Thomson Reuters. At a conference last week in Dubai, Dr. Walker pointed out that it takes some $120-$150 billion of investment demand every year just to keep gold prices flat – not to mention see prices climb higher (per Resource Investor).

That a lot of cash to maintain a baseline, and I would argue that bodes well for silver prices.

“The amount of silver that’s available for investment each year is 450 million ounces and the amount of gold that’s available for purchase is about 70 million ounces, which means you have a ratio of about six-and-a-half to one is amount of silver you can buy versus gold,” Eric Sprott said in a recent interview (per ETFDailyNews).

At current prices, that means investment demand needs to grow by $13.5 billion to keep silver prices where they are. That’s far less than the $120 billion gold prices will need to stay afloat.

Still, silver prices tend to follow gold prices as both metals act as stores of value during periods of inflation. The main indicator for whether or not gold and silver prices can keep up with supply then is the expectation of inflation, and expectations are a fickle thing.

As Dr. Walker pointed out last week, it’s probably not supply that gold and silver investors should be concerned about, but rather the possibility that the Federal Reserve might raise interest rates in an attempt to begin strengthening the dollar. That, he argues, could be the true “Black Swan” event we’ve all been worried about.

We’re not there yet, though. In fact, we just might see all-time record high gold and silver prices again before we ever see the interest rates rise. Check out our posts Silver prices setting up for 30-year high? and Why Eric Sprott believes silver prices will triple to $100 an ounce in 2012 for more.

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