Silver Prices Could Make Big Gains Thanks to Higher Volatility
As risks increase across the board and economic indicators fall short, gold prices have shown a substantial recovery. On September 5, gold closed at about $1,340 per ounce and even went as high as $1,345 per ounce. And gold’s little brother, silver, has not disappointed either. Silver prices have also enjoyed a dynamic couple of weeks.
Since the minor stock market correction on July 7, silver prices have risen. Silver has simply been experiencing major demand. That upward momentum should last. Indeed, the downward trend that began in 2016 could not last in the face of the multitude of factors threatening Wall Street now.
But, in July, silver struggled to break the line of resistance around $17.50 per ounce. This time, thanks to North Korea and Kim Jong-un’s determination to act as a nuclear mosquito harassing the United States, resistance is futile. Silver closed but a few cents away from $18.00 per ounce. Should it manage to hit $18.50, prospects of $20.00 per ounce or higher are as good as gold.
Chart courtesy of StockCharts.com
Some Key Factors That Will Support Higher Silver Prices
To understand why silver has such potential, it’s worth examining some key factors that affect its price in the short term and the long term. The price of silver, of course, varies first and foremost according to its supply and demand, which is also influenced by many factors. Demand is generally constant, while supply is limited—as is the case for most precious metals.
Demand increases in periods of uncertainty. The equity markets don’t appreciate uncertainties. In such periods, investors look for “traditional values.” Silver, like gold and a few other precious metals, has acted as a haven for centuries.
Silver could experience a more constant source of demand. The evolution of new technologies could boost silver prices in addition to the effect of investors seeking shelter from the randomness of the markets. New technology applied to so-called renewable energy will require more silver. Clearly, that would boost prices for this metal. Solar panels and other related devices converting sunlight or wind power to electricity require silver.
Technological applications will eventually help offset the price of silver in times of economic recession. Indeed, when the economy is healthy, jewelry and silver products become more sought after. Conversely, if wages stagnate, this type of purchase is often the first to be postponed because it is not considered necessary. That could soon change.
The latest provocation from the North Korean dictatorship has certainly opened a new and dangerous phase for the financial markets. Wall Street, in particular, is at great risk. There remains the chance for a major stock market correction or a crash.
Kim Jong-un will play the nuclear card (as did his father Kim Jong-il), in order to deter a U.S. military response. In other words, Kim Jong-un is only trying to ensure the continuity of his regime. He may also see the chance to turn North Korea into a small regional power.
Donald Trump faces a terrible catch-22 situation. If he does nothing, it would make the U.S. president appear weak in front of his allies such as South Korea, and his rival, China, producing serious political and militaryrepercussions.
Regardless, the situation will continue to accentuate market volatility. This is good for silver prices.