When Will Silver Go Up?

Many investors are asking themselves, “when will silver go up?” Unfortunately, it's tough to get a straight answer.

when will silver go up

It’s no secret that the silver price hasn’t fared well in 2015. As of September 29, it was down just under 9 percent year-to-date, and it’s down even further from its recent high point of $47.94 per ounce in 2011 — about 70 percent, to be exact.

It’s thus no surprise that many investors are asking themselves, “when will silver go up?” Unfortunately, even seasoned analysts can’t tell the future, meaning that it’s impossible to get a definite answer to that question; it’s nearly as difficult to find a broad consensus on the topic.

Nevertheless, it’s definitely possible to track down different opinions on the topic. Investors interested in betting on the silver price might do well to keep them in mind as they try to answer the question “when will silver go up?”

Silver in 2015

While 2015 has been a year of ups and down for the silver price, overall it has definitely trended downward. The white metal rose as high as $18.29 back in January, but has not neared that level since then. Indeed, the closest it came was $17.49 midway through May.

SILVER vs GOLD 2014-12-25 to 2015-09-29

To understand silver’s price action, it’s helpful to look at gold price drivers. Silver is of course the more volatile of the two metals, but nevertheless it often trades in tandem with the yellow metal. As the above chart from Kitco shows, that has been the case so far in 2015.

For gold, and by extension, silver, a key price driver in 2015 has been uncertainty about US interest rates. Investors have long been waiting for the US Federal Reserve to raise interest rates, and initially the expectation was that a hike would like hurt precious metals prices. However, as the rate rise has been pushed further out, the likelihood of it having a big impact on prices for those metals has decreased.

Why? In short, many market watchers believe that the interest rate rise has essentially become “baked into” precious metals prices. In other words, as Capital Economics’ Caroline Bain recently told Reuters, “the gold market has now largely adjusted to the prospect that the Fed will start to raise rates by end-year.”

That said, the anticipated rate increase remains front and center in many investors’ minds. Most recently, the Fed decided on September 17 that it would not be raising interest rates, stating that it only plans to do so “when it has seen some further improvement in the labor market and is reasonably confident that inflation will move back to its 2 percent objective over the medium term.”

The central bank also said that it “anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels [it] views as normal in the longer run.”

The Fed’s next meeting is scheduled for October 27 to 28.

Silver in the future

Whether or not a Fed rate rise will impact the silver price remains to be seen. However, if it ultimately has no impact, as many suspect, investors will be left wondering, “when will silver go up?”

While market watchers have identified other factors that may influence the silver price moving forward, firm calls on when such factors may come into play are hard to come by. For instance, many involved in the silver market have speculated that ultimately the lower silver price will force miners to cut output — thereby reducing supply and raising prices. But so far, despite the fact that the white metal’s price continues to drop, miners have largely chosen to cut costs rather than reduce their production.

On the demand side, some have commented on the possibility that solar demand may boost the silver price. Earlier this year, Thomson Reuters GFMS reported that silver demand from the solar sector came to 59.9 million ounces in 2014, up 7 percent from the previous year. That rate of increase is expected to rise in the coming years, and the firm’s Andrew Leyland said at the time, “silver’s quite well placed to benefit from any increase in underlying demand for solar panels.”

Looking at the market more broadly, silver guru David Morgan recently identified trouble in the paper markets as a catalyst that may move the silver price. Essentially, he told The Gold Report, “the futures markets allow massive amounts of paper contracts that represent silver and gold … to be manufactured at will for speculative purposes.”

The result is that demand can be satisfied “without changing the real supply” — that could create problems, he said, in that event that many investors attempt to take delivery on those contracts at once. “I think that the day of reckoning is closer because there is more of this going on and the premiums are so high,” he noted.

Even so, Morgan admitted that the problem has “come to the fore several times” without ultimately having an impact on the market.

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The upshot

As can be seen, the question “when will silver go up?” is a tough one to answer. In particular, while potential price-moving catalysts do exist (the above are just a few examples), even seasoned market watchers are not able to pinpoint exactly when such catalysts may come into play.

For investors, a key point to remember is that the resource space operates cyclically — in other words, while commodities like silver experience price rises and falls, ultimately what goes up must come down, and vice versa. The advice to “buy low and sell high” is repeated often for a reason, and though it’s nigh impossible to predict market bottoms, at today’s low prices, silver may certainly be a good bet.

 

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

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