I recently presented the bearish case for silver prices. I’d be remiss if I didn’t take a look at the bullish side. Here are five core factors motivating silver investors in 2014:
1) Tepid growth. Q4 economic growth in the U.S. was markedly weaker than analysts expected with the economy growing just 2.6 percent. Slow growth during the busiest shopping months of the year doesn’t bode well – particularly since Q3 was so strong (with 4.1 percent growth). Slow growth means continued easy monetary policies from the Fed.
2) The Fed is posturing. Janet Yellen and co. have hinted that they may hike interest rates sooner than we thought, but no rational investor or market analyst believes that. The economy is simply too fragile to start raising rates in six months. With interest rates near zero, banks continue to slosh cash into the economy.
3) China slowdown. China’s aiming for GDP growth of 7.5 percent in 2014. That’s ambitious after what’s roundly viewed as a very weak Q1 for the Middle Kingdom. If it doesn’t look like they’re going to meet that target, though, expect the Chinese government to step in and aggressively ensure that growth continues. “We have gathered experience from successfully battling the economic downturn last year and we have policies in store to counter economic volatility for this year,” China’s Premier Li Keqiang said in a speech this week (per Reuters). “We will launch relevant and forceful measures.” QE out of China would likely mean higher inflation and higher silver prices.
4) Geopolitics. Russia seems to be speaking out of both sides of its mouth. Leaders there say they just wanted Crimea, but reports of a troop build-up on the country’s border with Ukraine persist. Should Russia invade its neighbor, the effects would destabilize the global economy and likely generate powerful safe-haven buying in the precious metals sector.
5) Base metals price decline. A slowdown in the emerging markets would translate into decreased demand for base metals. As prices fall, many base metal miners are forced to take lower-margin mines offline. What’s that got to do with silver? Two-thirds of all the silver mined around the world comes from base metal mining (per Nasdaq). Less base metal mining disproportionately impacts the world’s silver supply.
All five arguments sound convincing enough, but until we see inflation seriously start ticking up in the U.S., I’m laying my chips elsewhere, particularly on digital currencies. Check out my post Bitcoin inflation hedge: The new gold and silver to learn why.