Given the Course of the Silver Price, Is It Time to Give Up?
The chart below doesn’t cheat or mislead you. At about $15.40 per ounce, the silver price is at its lowest since April 2016.
Is it time to give up on silver altogether?
Chart courtesy of StockCharts.com
The short answer may surprise novice precious metal traders: absolutely not.
If investors realize that the longer-term conditions for silver prices are auspicious—as I argue here—then the silver price could move toward the $17.00-per-ounce mark before the end of 2018.
Experienced resource investors remember that in 2009, the silver price was even lower than it is now, only to reach over $41.00 per ounce in August 2011.
Even more than gold, the demand for silver exists beyond the precious metal and speculative markets.
Silver has significant industrial applications, for which the current supply won’t be sufficient.
The Silver Price Is an Opportunity
Thus, consider the current silver price an opportunity to get into what may well be the most interesting precious metals prospect around now.
For the time being, silver investors must be patient. Whether for valid or invalid reasons, stocks in the U.S. have been riding an almost 10-year bull market—the longest ever.
This, combined with the expectation of higher interest rates and inflation, has propped up the U.S. dollar. It’s hard for the silver price to recover under such mighty forces.
Still, the long-term prospects for the silver price amid trade wars and actual wars (Iran could well be the Pentagon’s next target) are excellent.
Even if the traditional safe-haven investment incentive should fail, count on more concrete market forces to support it.
Silver, in relative terms, could even outpace gold when the time comes for the precious metal to go back in vogue.
That may take some time, but, given the gold price as an indicator, the bottom may be approaching.
Blame the Dollar for Silver’s Woes
The dollar index, which assesses the value of the greenback against six other currencies, has been rising. But it’s starting to show some hesitation.
Should the dollar stop moving higher—and there could be a reversal of fortune if the European Union decides to challenge U.S. sanctions on Iran as announced on July 9—precious metals will start recovering.
In addition, while the trade war is supposed to lower the U.S. trade deficit and strengthen the U.S. economy, there is no proof that this has worked (or will work).
Yes, a global trade war may well have the effect of reducing demand for resources altogether.
More trade barriers, especially in the case of countries that have erected entire economies to support export industries (such as China), will necessarily slow down, with negative repercussions on demand for raw materials.
But has this trade war actually started yet?
Indeed, even in the eventuality of a trade war, governments on both sides of it would be forced to find ways to prevent massive unemployment.
Just as in Europe in the 1930s, China and the U.S. would eventually redirect their energy to local investment and infrastructure, triggering a massive demand for resources and boosting precious metal prices higher.
Remember, There’s an Important Mid-Term Election in November
More than anything, President Donald Trump wants to ensure that fellow Republicans can boast about all the electoral promises Trump has kept—even if the results may be more illusory than real.
A real trade war with China would have already killed the U.S. retail sector (and all the jobs it creates).
Thus, I expect Trump to resolve the trade war either before the midterm elections—in such a way that he can present it as a victory—or right after.
In the meantime, the silver price will remain under pressure.
The dollar, like so many other things involving the markets these days, is moving on pure speculation.
And without the dollar at such overvalued prices—based entirely on perception rather than fact—the silver price would be far higher right now.
Besides, the Fed’s Promised Higher Interest Rates Are Premature
Much higher oil prices have distorted the data on inflation—and the Federal Reserve may have miscalculated. Typically, higher interest rates have the effect of slowing down the economy.
Any sign of doubt or hesitation about interest rates (President Trump has expressed his own concerns about the matter) will cause the dollar to drop—and precious metals to go up.
And the Fed’s hesitation could start rearing its head as early as the start of 2019.
Since the midterm electoral cycle will have ended by then, news about the U.S. economy should become more realistic and less bombastic. Inflation fears will subside, prompting the Fed to stop its interest rate hike program.
For the time being, investors appear to be too carefree to worry about the sort of things that prop up precious metal values.
The Long-Term Case for Silver
And then there’s the real long-term reason to be bullish on the silver price: electric transportation.
Battery demand will explode, and batteries need silver.
Note that I purposely wrote electric “transportation” and not just “cars.”
That’s because the entire transportation industry, including airplanes, is heading in the electric power direction.
For example, MagniX is developing an electric motor to power what is normally a jet-powered (turboprop) aircraft, the “Cessna Caravan.” (Source: “MagniX Promises Electrically Powered Cessna Caravan By Summer 2019,” June 7, 2018.)
And whether he will succeed in bringing it to market, Elon Musk has already unveiled a powerful electric truck. Furthermore, electric trains might be able to run without the need for expensive infrastructure.
The motors for the cars, planes, and trains will need research. But the most important element to make the electric transportation future possible remains the humble battery.
Silver: King of Conductivity
Few people realize that silver, one of nature’s best conductors, plays a crucial role in electric circuits. Silver is also malleable.
The combination of conductivity and malleability makes silver a leading metal of the future. Batteries and circuits will have to adapt to generate more power and fit into more things.
Weight saving will demand the best possible conductivity with the highest malleability to make micro or nanocircuits.
Silver fits the bill and it’s already in hot demand from manufacturers of solar panels and medical devices. It’s an element with a clear role in one of the most important growth industries.
The battery aspect will improve one of the two crucial drivers of the silver price: supply. The other, as discussed above, is the interest rate.
As is the case with gold, the silver price will reward those who are patient—and who do their homework on the metal’s enormous potential.