Any silver price forecast is dependent upon the expected behavior of the U.S. dollar. If you believe that dollar is on the verge of devaluation, you can probably expect silver prices to climb in response. Hubert Moolman’s recent piece “Monetary Collapse and Silver Price Not So Orderly Rise” at The Market Oracle, compares today’s volatile gold and silver market with the equally volatile precious metals surge in the late 1970s and early 1980s. Moolman does that by looking at patterns in the gold-silver ratio (the number of ounces of silver it takes to buy an ounce of gold).
Moolman points out that the gold-silver ratio has been trending down since roughly 1990, and that the pattern indicates we could see a gold-silver ratio around 15 in the months or years to come. Here’s his chart, which shows the gold-silver ratio over time (source):
If the gold-silver ratio were at 15 today, we’d have silver prices at $87 an ounce. That sounds high, but keep in mind that if silver were to spike rapidly, gold would probably be climbing higher, too. That would compound the price gains for silver if we truly moved to a gold-silver ratio of 15. That would also make Moolman’s silver price forecast even higher.
Moolman’s basic thesis is that we’re on the verge of an all-out monetary collapse.
“The rise of silver and the collapse of the monetary system is inescapably linked,” Moolman writes. “Therefore, if the collapse of the monetary system is not orderly, then the rise of silver’s value will not likely be orderly. Collapse by definition suggests: to break or fall suddenly. This would suggest that when the time comes, silver will explode higher suddenly; for example, it could be possible that it rises $10, $20, $100 a day, until you can suddenly not buy it with fiat money.”
My silver price forecast
If the dollar truly were to collapse, it’s hard to argue with Moolman’s silver price forecast. Investors, consumers, institutions and governments would be clamoring to move their fiat currencies into hard assets like real estate, gold, silver and possibly even bitcoin or stocks (check out my post Bitcoin inflation hedge: The new gold and silver).
I’m not as pessimistic as him in the near-term, though. While I do expect inflation sometime in the not-so-distant future, I don’t see signs that it’s imminent. Prices can’t move higher if people aren’t spending much money (put another way, inflation require consumers to be going on shopping sprees). Economists measure the amount of money moving through the system as money velocity. Right now, money velocity is low (source):
Until money velocity picks up, inflation will remain low, and the government’s free to print as much cashola as they want. Eventually, it’ll catch up with them, but I believes the scars from 2008 are too fresh to expect consumers to start overspending any time soon. That gives the Federal Reserve a nice grace period to continue printing money.
So long as we have low inflation, silver prices will remain low. My silver price forecast is $25 an ounce in 2014, though I expect it to go much higher in 2015 and beyond.