Precious metals such as gold and silver are often used as investments. Silver has been used as money for more than four thousand years. However, that is no longer the case. Silver hasn’t been used as legal tender in developed nations ever since the silver standard ended. Some countries still mint silver bullion and collector coins such as the Canadian Maple Leaf or American Silver Eagle. If you have ever invested in silver, these are most likely some of the coins you purchased.
In the following article, we will examine the conditions that determine the going rate for silver, an overlook of recent years' silver market, and some ideas of how to determine the future trends of the price of silver per ounce. The focus will be on price trends from 2016 onwards so you can determine whether investing in silver is a good idea for you.
How Has Silver Fared In The Last Few Decades?
Before you can determine your destination, you need to know where you’re coming from. In other words, in order for you to be able to understand and predict the silver rate in 2016 and beyond, you should review the silver market trends of the past. We are going to examine the silver market from the past few decades–its ups and downs and their causes.
In the 1970s, the price of silver boomed. Prices reached as high as $50 an ounce. However, this bullish trend did not continue for long. On March 27, 1980 the silver prices in the USA saw its biggest crash yet. On that day, the silver rate in the USA plunged 64% in one session. So shocking was this crash that the day is now known as "Silver Tuesday." This was the biggest single-day drop in silver prices ever recorded.
The crash was caused by the brothers William and Nelson Hunt. With the boom in
silver in the 1970s, the two brothers decided to corner the market in precious metal. They borrowed heavily and used loans to purchase both silver and silver future contracts. However, government regulations interfered. Eventually the brothers Hunt defaulted on their loans. In doing so, they managed to cause a crash, the reverberations of which lasted for the next two decades. The silver market became a bear market.
In 2011, there was some relief as the prices of silver soared. It was almost back at its high of $50 an ounce in 1980. The price reached up to $48.64. Unfortunately, this trend did not last very long. The markets crashed again, causing the prices to drop as low as $14 an ounce. On December 14, 2015, the price fell to a low of $13.81. However, 2016 has seen a revival in the silver market. As of August 1, 2016 the price of silver stood at $20.54.
Factors That Determine The Price of Silver
As an investor, you should have an idea of where the rate of silver will head towards over the next few years. In order to do this, you also need to know what affects the prices of silver in the world market. Having knowledge and better understanding of these factors can help you conclude, quite accurately, what the rates of silver will be going forward.
There are many factors that can affect the price of silver in today’s markets. Silver prices fluctuate constantly and is considered a fairly volatile investment. Some factors that influence silver prices are:
- Traders and Investors
When compared to the gold market, the silver market is quite small. This means that a large investor or trader can influence the market one way or the other. The Hunt brothers are a perfect example of this. Other players, such as Warren Buffet, iShares, and Morgan Stanley have also affected the silver prices in USA at different points of time.
- Supply and Demand
Since the end of the silver standard, the metal has increasingly been used for industrial purposes, photography (although, this use has declined with the advent of digital photography), in electrical appliances, photovoltaics, clothing, and medical use among others. Because middle classes have begun to emerge in developing economies wanting to emulate Western lifestyle, the use of silver in industry and ornamentation or jewelry will only increase. Another point to consider is that the world’s largest consumer of silver is China. The demand there is growing, although it has slightly trailed off recently.
- Silver Market Supply
This has less to do with the uses of silver and more to do with silver reserves. The prediction is simple–high reserves mean low prices. Similarly, low reserves mean high prices. We know that the current price of silver is low. However, it is believed that the world’s silver reserves are shrinking at a rate of 5% a year. This can only mean that the going rate for silver will only increase.
- The Stability of the US Dollar
This is, again, a major factor. The strength of the US dollar goes a long way in determining the price of silver. Silver prices rise when the dollar is weak and fall when the dollar is strong.
These are only some of the factors that can affect silver prices. As mentioned earlier, there are many more. Current affairs, currency fluctuations, and buying power are just a few more. All of these factors together or on their own can contribute to the rise or fall of silver prices.
To be able to predict what the price of silver per ounce will be in the future, you need to find out all these factors and study them carefully. Keeping an eye on all these points can help you determine whether you will be buying silver shortly or selling it. In other words, you can determine whether prices are about to fall, which is a good time to buy silver or whether prices are going to rise, which is a good time to sell your silver investments.
Editor's Note: Wealth advisor Minesh Bhindi talks about some techniques on this in a free webinar which you can sign up for here.
Predictions for 2016 and Beyond
In addition to the factors that affect the silver market, it is always a good idea to find out what the experts have to say on the subject. As experts, they are in the know about considerations you may not even be aware of. Taking the time to go through news reports, articles and blogs or interacting with these experts either on various forums can give you valuable insights into current market conditions. It can also help you predict what the prices of silver per ounce in the next few years will be.
If you’re confused about the predictions for the price of silver in this year and afterwards, I don’t blame you. Predictions about silver prices are almost as varied as those making them. Some investors claim that it is possible that silver could reach $1000 per ounce. These experts also claim that the prices of silver will hit the triple digits by 2019. Others propose caution as they feel that the economy is heading for another recession. Even these people recognize that a weakening economy will prompt the Fed to change policies, resulting in a stronger economy and, thus, an increase in the price of silver per ounce.
Watch below a YouTube video in which the speaker talks about the likelihood of silver hitting the $50 mark or more.
You may wonder why there is a general air of optimism about the prices of silver per ounce. Why do most experts believe that the silver exchange rate will rise, regardless of the fact that market trends over the last few years have managed to fluctuate quite a bit? Below you will see a few factors which makes certain experts believe that the price rise for silver is here to stay.
- The Use of Silver in Renewable Energy
As mentioned earlier, silver is used in photovoltaic cells. These cells are used in solar panels and convert light into energy. The silver cells in silicon come into contact with sunlight. The resulting reaction creates electricity. Because is estimated that the demand for solar energy will increase, the number of solar panel installations will increase by 119% by the end of 2016. This means that the demand for silver will also increase substantially. As a result, there will be an increase in the rate of silver.
- Federal Reserve’s Unwillingness to Increase Interest Rates
At the moment, the Federal Reserve is not too keen on increasing interest rates. This means that commodities valued in US dollars will benefit from these rates. Since higher interest rates increase the value of the dollar, silver becomes more valuable. People who use currencies other than the dollar find it difficult to afford silver, causing demand to decrease. This drop in demand means that the prices of silver will go down. As a whole, lower rates help to keep the price of silver up. Since the economy seems to be slowing down, the Federal Reserve hasn’t increased rates, which is good news for the silver exchange rate.
- Silver Coin Demand
The American Silver Eagle coin is in high demand at the moment. Since 2007, the sales of these coins have improved by 370%. In fact, in 2015, the American Silver Eagle set a new record–47 million American Silver Eagle coins were sold. In addition, bullion demand has also increased by leaps and bounds and shows no signs of slowing down. This creates additional demand for silver, which in turn means prices continue to rise and hold their value.
- A Safe Haven
Silver is increasingly being seen as a safe haven. The term "safe haven" refers to investments that won’t tank during hard economic times. Instead, they either increase in value or hold their value at times when the market is unstable or unpredictable. Many traders and investors have begun buying silver and keep it as a safe haven in their portfolio, which is another way for the demand for silver to continue increasing.
- Low Gold/Silver Ratio
First, let’s understand what gold/silver ratio is. It is used to calculate the relative values of silver and gold in regards to each other. The formula is pretty simple: divide the current price of gold and the current price of silver with the price of gold as the numerator and that of silver as denominator. The larger the distance between the two values, the lower the prices of silver fall. Similarly, the smaller the distance between the values of gold and silver, the higher the silver price per ounce rises.
- Silver Jewelry
This one might seem slightly frivolous at first until you realize that this also adds to the demand for silver in the market. Jewelry sales has been increasing in the United States for the past seven years. More and more jewelry stores are selling silver jewelry every year and the trend shows no signs of abating. Because of high demand, 50% of silver retailers have ordered more supplies of silver jewelry.
It is never easy to make market predictions of any kind. There are many factors that go into governing what the rate of commodities will be. This is especially true in the case of silver prices. There are a plethora of factors that can work in the background and either push the average investor up or pull him down. In addition, past and current trends need to be taken into consideration. Nevertheless, with careful planning and proper attention to detail, you can become quite successful in terms of being able to predict which direction the market will go next. However, even you cannot expect that your predictions will always be accurate so be very careful when making them.