LAWRIE WILLIAMS: Is silver heading for $25 or higher soon?
For an investor who put their faith in silver back in 2011 when the metal price topped at just under $50 a troy ounce in March of that year, $25 may look to be a pretty modest target, but for one who invested in early March 2020 this would represent a more than doubling of one’s investment. It’s thus all a question of timing. The out and out silver bulls may be looking for a price several times higher than this, but given silver’s big industrial demand element (around 60%) perhaps the scope for mega increases is somewhat limited, but for the moment the force is with silver at long last. High silver prices, though, could accelerate the search for substitutes or reductions in content in its main industrial uses and thus put a possible damper on continuing price rises.
However, we do see $2,000 gold and $25 silver (suggesting a Gold:Silver Ratio of 80) as being on the cards, perhaps sooner rather than later, although this could be tempered by silver investors, in particular, taking profits (there is anecdotal evidence that this may already be happening!). There is also a sign that strong momentum may be building for gold in particular, and this could help drag silver and the pgms up with it. At the moment watch the Gold:Silver Ratio (GSR). This has been moving strongly in silver’s favour for the past several days after a bit of a hiatus close to the 100 level. As I write it has come down to around 85 and a silver price of comfortably over $21
Should the global economy remain in deep recession into the fall this could adversely affect the price prospects for those precious metals which rely most on industrial usage for their supply/demand fundamentals. This may affect the pgms even more than silver given they rely heavily on the truck and more consumer-oriented light automobile markets for the bulk of their demand. Truck and auto sales may be picking up a little but are unlikely to get anywhere near prior demand levels until there is a full recovery from the COVID-19 pandemic effects on the global economy, and this may well persist for some years yet before things get back to past levels – if they ever do. Indeed we do see the gold price potentially retaking the crown of being the most expensive of the major precious metals before the end of the current year, or by early next. We also foresee platinum moving up closer to the palladium price as the fundamentals for the former improve and the latter deteriorate. One perhaps doubts whether the old status quo will be reached this year whereby platinum was priced substantially higher than its sister metal’s level, but over time this will probably happen too.
Yesterday we did see a substantial boost in precious metals prices, but base metals and oil also rose in price too suggesting this flurry of rises will have been almost entirely due to a fall in the dollar index. The Murenbeeld & Co. gold price scenarios which we covered in a recent article (Murenbeeld decidedly bullish on gold) were all predicated on a decline in the dollar index given the U.S.’s huge debt levels, and it looks as though this may already be coming into play. But precious metals prices have continued to rise this morning despite the dollar seeming to stabilise.
Short to medium term precious metals price growth looks to be very much dependent on the state of the U.S. economy, with this being badly affected by the seemingly incessant growth of coronavirus infections. The U.S. is already leading the world in the total number of confirmed coronavirus cases at over 4 million, although that is not too surprising given the very high number of virus tests carried out there – the more testing that is undertaken the more cases of infection will be exposed. But President Trump’s contention that the U.S. has one of the world’s lowest death rates does not stand up to scrutiny. On the current count the U.S. has the world’s 8th highest death rate among countries with populations of over 1 million inhabitants, and the rate is rising daily. The President is correct, though, in his contention that the U.S. death rate per million is so far lower than that of several major European economies, although higher than than that in some other key European nations. Total U.S. deaths are currently at around 145,000 – the highest reported number for any single country - and the rate per million is rising daily, although the death rate in Europe has mostly stabilised. However there is also little doubt that the death rates in many other countries, particularly in the less-developed economies. is substantially under-reported.
This morning gold opened in Europe at over $1,850 and silver in the mid-$21s, although both are currently seeing profit taking at these levels which could bring prices down a little. But these enhanced price levels may well set a precedent which will see the former rise towards $1,900 by the end of the northern summer and $2,000 spot in the fall, while silver, now that it seems to be coming back into investment favour, could well be headed to the aforementioned $25 level. But perhaps investors should be beware of the U.S. Labor Day holiday on September 7th. Like the Ides of March this has sometimes proved to be an inauspicious day for precious metals prices with market changes in direction at the end of the traditional U.S. summer holiday season.