2016 silver price predictions: Are we headed up or down?

Let’s take a look at the latest silver price predictions for 2016 as part of our Three-up and Three-down series. We’ll present three bullish arguments for silver prices and three bearish arguments as well. Then, you decide where you think silver’s headed next year.

The bullish case for silver in 2016

1) Devaluing the yuan. Earlier this year, China abruptly announced it would devalue the yuan by 2 percent against the U.S. dollar. The government wanted to spur economic activity in the People’s Republic. Instead, they spooked currency traders who started selling the yuan. In turn, that forced China to start selling some of its dollar holdings, so the country could buy its own currency. That heavy selling is putting downward pressure on the dollar. Some speculate it could lead to a considerably weaker dollar, which might encourage more investment in hard assets like gold and silver. Gaurav S. Iyer, a research analyst and editor at Lombardi Financial, speculates that the weaker dollar might push silver back toward its 2011 peak around $50 an ounce.

2) Supply strain. Most of the silver that’s mined in the world is a byproduct of mining for other metals (copper, zinc, gold and lead). Since metal prices have fallen across the board, mining companies have drastically cut expenses and lowered their production levels by shuttering some mines. Less gold, copper and zinc means less silver, too. “Take Canada, one of the world’s major silver producers, for example,” writes Michael Lombardi. “Year-to-date, silver mine production in Canada has declined by 20%.” This could lead to a silver supply crunch if the global economy starts picking up steam (as many expect it to do next year). That’s because silver’s used extensively in many high-tech products.

3) A skewed ratio. The silver-gold price ratio is north of 70. Put another way, an ounce of silver costs more than 1/70th the amount of an ounce of gold. “Over the last 40 years, the grey metal averaged a 42.8 conversion rate with gold,” Iyer writes. “History has shown that a rise in silver prices are all but guaranteed when the ratio tops 70. It’s sitting at 75 right now.” According to him, that means we could see silver prices surge 420 percent from where they are today.

The bearish case for silver in 2016

1) A strong dollar. China’s devaluing the yuan. India and the Eurozone are increasing their quantitative easing programs, and the U.S. Federal Reserve is planning to hike interest rates this year or early in 2016. All signs point to a strengthening dollar. And that negates one of the most powerful incentives to invest in silver: using it as a hedge against a dollar collapse.

2) Deflation. What will be the biggest determinant of silver prices in 2016? Whether we see inflation or deflation. Since precious metals have a finite supply, they act as a hedge against inflation (much like real estate and even stocks). When we’re in a low-inflation environment – or worse, a deflationary environment – it just doesn’t make sense to hold a large position in silver. Across the globe, signs are pointing toward deflation. Credit default swaps are rising, currencies in emerging countries are declining (a sign of slowing global growth) and the rising dollar is disproportionately punishing companies outside the U.S. If we tip toward deflation, we’re probably not going to have rising silver prices.

3) The bear market continues. I always follow momentum until that momentum is broken. Silver’s down more than 70 percent from its 2011 peak. The metal is in a bear market, and I’m not ready to call a bottom yet. Neither is JP Morgan.

Here’s their 2016 silver price prediction: “Silver prices will broadly continue their bearish trend for the coming two quarters before finding greater strength in the second half of 2016,” they said early last month. Specifically, JP Morgan is predicting silver prices will average $14.08 in Q1 of 2016 and $14.65 throughout the year.

Where do you think we’ll see silver prices in 2016?

Watch out below: Silver prices low and heading lower

At prices below $20 an ounce, silver is now flirting with 3 month lows. And it may have further to fall. In fact, I wouldn’t be surprised to see it hit new lows for the year and then target lows we haven’t seen since 2010.

At prices below $20 an ounce, silver is now flirting with 3 month lows. And it may have further to fall. In fact, I wouldn’t be surprised to see it hit new lows for the year and then target lows we haven’t seen since 2010. There are just too many headwinds out there. To name a few:

1) Inflation is anemic at 1 percent.

2) Stocks are outperforming other asset classes. They’re paying great dividends and carry much less risk. Why invest in precious metals and watch your capital shrink when you could buy shares in Wal-Mart (WMT), be up 15 percent on the year and be earning a 2.3 percent dividend?

3) The Fed surprised the market by signaling that tapering is “in the cards relatively soon.” That doesn’t sound very damning in and of itself, but officials took it a step further when their recent meeting minutes revealed they were willing to taper even if the job market wasn’t improving significantly.

That says one of two things to me:

a) The Fed is nervous about inflation.

b) The Fed trying to head off an asset bubble in stocks.

Inflation worries just aren’t here yet. That means, Option B is likely with two of the three leading stock indices at record highs. On the year, the Dow’s up 22 percent, the S&P’s up 25 percent and the Nasdaq is up 31 percent. We can’t keep that pace up without some assistance or some serious economic growth – and we’re definitely not seeing serious economic growth.

Silver price predictions

If the bearish trend continues, MIG Bank in Switzerland is predicting that we’ll test silver’s summer lows around $18.23 an ounce (per Bloomberg). That’s 8.7 percent below the current price of $19.98. If we do close below this summer’s low of $18.23, silver could tumble precipitously. Indeed, we might not find real support until we hit 2010 lows around $15 an ounce. That would be a plunge of 25 percent.

Of course, if we do see a big sell-off in silver, I don’t think it will be long-lived. Check out my post Silver price forecasts and predictions for 2014. I do however wonder if Bitcoin’s stealing some of the white metal’s luster, and I’m quite a bit more bullish on it than I am on precious metals right now. Check out my post Bitcoin inflation hedge: The new gold and silver to learn why. And, if you like that, you’ll love this: The case for bitcoin at $100,000.

Silver price forecasts and predictions for 2014

Silver prices have taken a beating over the past two years. Will 2014 be the year when they finally break free again?

2013 has been a rough year for silver. Prices for the precious metal have fallen nearly 30 percent when they opened trading in January around $31 an ounce to today’s price of roughly $22 an ounce. It’s the definition of a bear market. We’re seeing a series of lower higher and lower lows that’s best illustrated by looking at an annual chart for the white metal:

Numerous factors have been working against the metal this year. Specifically:

  • Lower-than-anticipated inflation.
  • Economic growth in the U.S.
  • The likelihood that the Federal Reserve will soon start tapering its aggressive bond-buying program.
  • Economic uncertainty in China and the Euro-zone, which strengthens the dollar.

And yet, I remain convinced that the U.S. faces significant inflation and higher interest rates in the future, and that could lead to yet another surge in the price of precious metals, commodities, and perhaps even Bitcoin (check out my post on How to buy Bitcoin). I’m not alone either. While there are bears out there, a lot of forecasters are predicting higher silver prices in 2014 and beyond. Let’s take a look at the top 2014 silver price predictions:

  • $60 an ounce in 2014: So says MoneyMorning writer Tony Daltorio who expects prices to close out 2013 somewhere near $40 an ounce (something I’m skeptical of).
  • $36 an ounce in 2014: Silver is undervalued at today’s prices says Steve Nicastro at SeekingAlpha. He bases his assessment on the gold-silver ratio. “A conservative estimate of the gold:silver ratio at 35:1 would put silver at $36 an ounce at the current gold price,” he writes. “With gold at $1,500, silver would sit over $42 an ounce. With gold back at the 2011 highs of $1,900 an ounce, we could see silver top $54 an ounce, or higher.” Look for next year’s gold prices to see if and when silver is over- or undervalued.
  • Look for “record silver prices within the next 10 years.” It’s not a very helpful forecast, but that’s what the CPM Group is forecasting. They’re staking their prediction on increased industrial demand for the metal.
  • $21 an ounce in 2014: That’s BMO Research‘s forecast for the average silver price in 2014. They even revised that higher from $18 an ounce in October. Wow. Talk about being bearish. It’s almost enough to turn me into a contrarian.
  • Look for a surge in metals prices “late in 2014” according to Thomas Paterson. Paterson argues that household deleveraging has kept inflation tame. Once the average American has paid down enough of their debt to start making substantial purchases, inflation will grow rapidly as money velocity speeds up. Gold and silver prices will surge as that happens, Paterson believes. He argues that late in 2014 will “be time to bet the ranch on gold.” I’m extending his argument to silver, too, though I would never say you should “bet the ranch” on any single investment.
  • $27 to $28 an ounce in Q2 2014: That’s the latest prediction from Victor Kerezov. Kerezov believes silver prices will remain muted through the first quarter of 2014.

Of course, there needs to be a reason for silver prices to move higher. Specifically, we need a catalyst – some pronounced trigger or indication that it’s time to start buying metals again. Those triggers could include:

  • An increase in economic stimulus from the Federal Reserve or congress.
  • A sudden jump in inflation.
  • Short covering (buyers who are betting against silver start covering their bets).
  • Growth in physical demand or a supply shortage due to mine closures. The solar industry, for example, could drive increased demand for physical silver.

Once any of those triggers are hit, the rest could follow quickly and we could see a surge in silver prices reminiscent of 2011.

Gold and silver bubble will ‘dwarf’ the Internet bubble

It’s probably the best risk-reward situation right now as the gold and silver markets have ever seen in terms of the equities.

One of my favorite quotes in recent news came from Bill Murphy founder and chairman of the Gold Anti-Trust Action Committee (GATA). In an interview (that I highly recommend) with Jim Puplava of the Financial Sense Newshour, Murphy argued that the price of gold and silver have been successfully manipulated for decades.

The debt crisis that’s plaguing the U.S., Europe, Japan and other countries will eventually lead to so much money-printing, though, that continuing to suppress the price of precious metals just won’t be possible. That’s when we’ll truly see a tremendous climb in prices.

“When the public comes in here in our tiny gold and silver markets, it will be a bubble, and it will dwarf what the Internet did except it will be real for a long period of time,” Murphy said. “And that’s coming.”

That’s good news for gold and silver stock holders, but it will likely be bad for everyone on the outside looking in. Since Murphy’s certain we’re nearing the tipping point for inflation (especially after the Fed signaled that QEIII is coming on Friday), he looks at buying mining shares as a no-brainer.

“It’s probably the best risk-reward situation right now as the gold and silver markets have ever seen in terms of the equities,” he says.

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Silver outperforms all other precious metals in August; Where do metals prices go now?

Silver rallied more than 4.5 percent to give it as a solid lead as the top-performing metal in August. It could be a leading indicator that now’s the time to move into gold and silver mining stocks.

When Federal Reserve Chairman Ben Bernanke said the Fed “will provide additional policy accommodation” to bolster the US economy on Friday, metals prices sprinted higher in an end-of-the-month surge. Silver rallied more than 4.5 percent to give it as a solid lead as the top-performing metal in August.

Precious Metals Gains, August 2012

Metal Monthly Gain
Gold +4.5%
Silver +12.6%
Platinum +8.5%
Palladium +6.6%

The moves propelled gold to a five-month high while silver’s sitting at a four-month high. Still, leading analysts seem to think the best is yet to come for metals as quantitative easing looks to be more imperative.

“We took the amount of debt owned by major countries that is going to have to roll over in the next three years,” Jim Puplava of the Financial Sense Newshour said recently. “Over 50 percent of US debt is rolling over, 50 percent of Japanese debt, German debt, (etc.), and none of these countries – whether it’s the United States or Europe or Japan – can afford a spike in interest rates. So you know sooner later we’re going to get multiple forms of quantitative easing.”

More quantitative easing means higher inflation and higher precious metals prices as the value of global currencies retreat. That really has me taking a closer look at gold and silver stocks. Many of them have been trending up over the past three months, but they’re still trading below where they were a year ago.

Let’s take a look at a small-cap silver mining stock like Great Panther Silver Ltd. (AMEX:GPL). One year ago, shares stood at $3.19. As of Friday’s close, they were trading at $1.97. If prices return to last year’s levels, that would be a gain of nearly 62 percent.

“When the public comes in here in our tiny gold and silver markets, it will be a bubble, and it will dwarf what the Internet did except it will be real for a long period of time,” Bill Murphy founder and chairman of the Gold Anti-Trust Action Committee (GATA) Jim Puplava in that same interview. “And that’s coming. … It’s probably the best risk-reward situation right now as the gold and silver markets have ever seen in terms of the equities.”

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Silver prices set to surge higher

Bernanke didn’t say the Fed “may” stimulate, he said the Fed “will” stimulate. That was all it took. Gold and silver prices were off to the races.

Silver prices rocketed higher on Friday thanks to hints from Federal Reserve Chairman Ben Bernanke that QE3 could be around the corner. Prices for the white metal traded in a narrow range around $30.70 an ounce Wednesday and Thursday in the run-up to Bernanke’s speech.

Early Friday, prices started climbing and they didn’t stop until the markets closed. By the end of the day, silver was up to $31.74 an ounce – a gain of 4.58% in a single day of trading. The actual quote that had traders salivating is (in typical Bernanke fashion) vague:

“Taking due account of the uncertainties and limits of its policy tools, the Federal Reserve will provide additional policy accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability,” he said (per IBD).

Bernanke didn’t say the Fed “may” stimulate, he said the Fed “will” stimulate. That was all it took. Shares in gold and silver mining stocks were off to the races. Majors like Silver Wheaton (NYSE:SLW) rose 5.2 percent and Silver Standard (NASDAQ:SSRI) climbed 7.9 percent. Some small-cap miners did even better with Great Panther Silver (NYSEAMEX:GPL) rocketing up more than 11 percent.

“My friend Eric Sprott of Sprott Asset Management is one of the smartest men I’ve ever met in my life and a real detail guy – and he thinks silver is going to go well above $100, and you might even be able to pick a number for silver,” Bill Murphy founder and chairman of the Gold Anti-Trust Action Committee (GATA) said in a recent interview with Financial Sense. “I think … people that are willing to do their homework and be patient and accumulate these cheap gold and silver shares will make fortunes in the years ahead.”

Of course, anytime there’s a run-up in gold and silver prices, it doesn’t happen smoothly. Since precious metals act as a barometer of the wider economy, political changes and economic numbers can cause large price swings. When prices are on the rise, though, it can happen violently. And it looks like we could be in the midst of another big upswing.

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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.

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What will silver prices be like in 2016? Haywood makes silver price forecasts

Haywood Securities has made silver price predictions for the next five years. Look for the metal to peak sometime this year, they say, then start a slow but steady sell-off.

It’s not unusual for investment companies to forecast prices for commodities in the upcoming year, but rarely do companies push their price predictions out as many as five years into the future. Haywood Securities did that with silver, though, in a recent research report (per Mineweb).

The Vancouver-based research firm told investors to look for silver prices to average $36 an ounce in 2012. After that, Haywood expects prices for the white metal to start a long, downward slog. Here are their predictions for silver prices over the next fiver years:

  • 2012 silver price forecast: $36
  • 2013 silver price forecast: $32.50
  • 2014 silver price forecast: $29.50
  • 2015 silver price forecast: $28
  • 2016 silver price forecast: $24

Beyond 2016, Haywood expect silver prices to settle around $20 an ounce. Those are glum predictions. And it’s important to note that Haywood’s not alone. Last week, Citigroup Inc. sent a research note to investors predicting silver prices would actually fall 10 percent by the end of 2013.

“We caution that continued keen investment interest in the metal is required for a silver price of approximately $30 (USD) per ounce,” Haywood analyst Chris Thompson noted in the report.

Our interpretation of that? Anytime the silver price is north of $30 an ounce, it’s up there because of high investor demand driven by economic uncertainty. To take our inferences further: if Haywood sees the price of silver continuing to drop through 2016, they feel like the global economic picture is going to keep getting better over the next five years. That means they’ve got a lot of faith that governments around the world will rally to embrace fiscal responsibility.

Further dampening silver prices, Haywood expects silver production will continue to hit record highs through 2016. The mined silver supply hit 716 ounces last year. Haywood expects the mined silver supply to exceed 1 billion ounces in 2016. That’s a whole lot of new silver in the face of decreased demand.

Of course, all of the numbers above rule out the possibility of an economic calamity in one or more countries or regions (something that is a very real possibility). Look for Haywood to quickly revise their numbers higher if we see a sovereign default, hyperinflation or a breakup of the Euro.

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Silver mania: Signs that a surge in silver prices is coming

Conventional wisdom would say that now’s the time to sell your silver. In fact, there are signs that’s silver’s setting up for another major upswing.

It’s hard to argue that the silver market isn’t weak right now. Silver stockpiles haven’t been this high on the Comex for more than a decade. On Monday, Citigroup Inc. (NYSE:C) sent a note to investors arguing that silver prices will likley fall 10 percent to $27 an ounce in 2013.

The COMEX lowered margin requirements for silver for the second time since February. Worst of all, silver prices have plunged more than 10 percent since the start of March.

And yet, there are signs out there that we’re at an inflection point for silver prices.

“Gold and silver are very close to entering the mania phase of this bull market,” writes Hubert Moolman at ResourceInvestor.

Moolman’s laid out some interesting charts showing that silver chart patterns today look eerily similar to the same patterns we saw before the white metal hit an all-time high in 1980. They also look like the chart pattern we saw in gold prices when gold hit a new all-time record in 2008 (click for the originals):

Moolman points out that in order for silver to enter a mania phase, cash (and lots of it) is going to need to flow out of a different asset class. His prediction is it’ll flow out of stocks and into metals. That’s what happened in 2007/2008, and – if you’ll recall – stocks were hitting all-time highs around that time; just as they are today.

Of course, we can’t rule out political influence on the price of gold and silver. With the upcoming presidential election in November, Chris Marchese, a contributor to The Morgan Report, believes “Bernanke will do everything in his power to make Obama look good to get re-elected.” That – along with the debt-fueled recovery we’ve been spoonfed – prompted Marchese to make calls of silver spiking as high as $70 an ounce this fall.

Buying into weakness is one of the toughest psychological hurdles in investing. It’s also a great way to make money so long as you do with discipline, a firm plan and padding in your bank and brokerage accounts to weather the inevitable setbacks. You want to buy silver when no one else is. And, if you’re worried about prices for silver that you’ve already purchased, just take the long-term view: gold and silver have been money for thousands of years. That’s not going to change anytime soon – no matter what the pundits say.

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Look for silver prices above $50 an ounce in Q4 2012

$70 an ounce by the end of the year? Chris Marchese goes on the record with his predictions for silver prices in 2012.

Most investing commentators are wary of going on the record with gold and silver price predictions – particularly if they’re suggesting a specific timeline when we might see those prices. Chris Marchese, a contributor to The Morgan Report, doesn’t have those reservations.

In a recent interview with The Gold Report, he called out prices and timelines: “I think in Q412, we’ll break $2,000 an ounce in gold and $50 an ounce in silver,” he says. “It could run up as far as $60–70 ounce just because of the technical buying and no overhead resistance at $50 ounce. Toward the end of 2012, it could be $55 ounce silver and $2,100 ounce gold.”

Why is he so bullish on gold and silver? Largely because he believes the “recovery” we’ve been reading about has just been manufactured by the creation of more debt. The government may say that real GDP is growing, Marchese says, but that’s largely thanks to government spending.

On top of that, Marchese tracks what he calls “True Money Supply.” That’s the sum of all money that’s available to be spent in the U.S. It’s been expanding at an alarming rate – somewhere between 10 and 15 percent a year over the past three years.

The true driver for higher gold and silver prices this fall, though, will likely be the presidential election in November. If the economy’s showing the slightest sign of weakness, Marchese believes “Bernanke will do everything in his power to make Obama look good to get re-elected.”

Of course, not everyone agrees with Marchese’s outlook. Earlier this week, Citigroup Inc. sent a research note to investors predicting silver prices would actually fall 10 percent by the end of 2013. The bank cited heavy “conviction calls” betting against silver as one of the reasons. On top of that, they believe gold will outperform silver since it functions almost wholly as a precious metal.

I disagree on both points. I don’t think investors will shun silver in favor of gold – particularly with gold prices near $1,650 an ounce.

From the supply and demand side, it is troublesome that miners are pulling more silver out of the ground than ever before (some 3 percent more than they did in 2010). But, betting against silver right now is essentially making a “conviction call” that the dollar will not retreat any further, quantitative easing won’t be necessary in the future and inflation will remain tame. I’m just not prepared to make that bet.

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