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LAWRIE WILLIAMS: New silver service sees good gains ahead

The team at Murenbeeld & Co in Canada that produces the excellent weekly Gold Monitor publication has launched a parallel publication on silver – Silver Monitor – led by the group’s research head, Chantelle Schieven.  It is being published under the banner of Capitalight – Murenbeeld & Co’s owning company - but is very much following the Gold Monitor pattern – even down to its silver price forecasting format.  Martin Murenbeeld himself is not directly involved as he has always restricted his analysis to gold, but is an advisor to the new venture.

The initial silver price forecast is positive, with Schieven following the same pattern of price prediction as with the Gold Monitor.  That is by taking three possible price scenarios a bearish case, a most likely case and a bullish one and applying a likelihood weighting to each.  This initial outlook forecast is detailed below:

Murenbeeld & Co

As can be seen from the above, Schieven has given a 20% weighting to her most pessimistic silver price scenario going forwards,  25% for her most optimistic one and 55% to her most likely forecast up until Q1 2022.  The overall results taking all the scenarios into account could best be described as cautiously optimistic for today’s silver investor who is sitting on a closing price this weekend of a little over US$24.

Schieven notes that the objective of the forecasting exercise is to provide the Silver Monitor subscriber with three silver price scenarios that the consultancy believes are based on plausible global financial and economic developments measured via statistical analysis. Each scenario is given a subjective probability (based on the Murenbeeld & Co. view of things), but the subscriber can always insert his/her own set of probabilities and generate a different probability-weighted forecast.  Schieven thinks these three scenarios cover “all the bases” – but there is no guarantee, of course.

Indeed the fluctuations in the silver price can, at any given point of time, make these price predictions seem way out.  However, bear in mind these are price averages over a whole quarter and certainly do not preclude big fluctuations either side of the forecast numbers.  For example the predicted Silver Monitor price average for Q4 2020 is $25.8.  We think there is a good chance that the metal price may hit $27 or higher during the quarter – particularly should the gold price climb to over $2,000  intra-day as we believe is possible – but this could still happen with an average price across the full quarter of $25.8 as the latest forecast suggests.

Obviously the forthcoming Presidential election is likely to have an effect on day to day prices, and even the progress of precious metals prices once Trump or Biden is elected will be far from certain.  U.S. economic weakness and ever-increasing debt will continue whoever is to lead the nation.  Both Republicans and Democrats will be looking to a further massive stimulus package after the event and this has to be positive for precious metals – and perhaps even for general equities despite the dire situation many sectors of society will see themselves in as efforts to defeat the coronavirus through the likely-to-be difficult winter months will continue to have an adverse impact on the economy and employment.

Schieven points out that there are three main variables that stand out as driving silver price movements over the next couple of years - real interest rates, global liquidity, and potential geopolitical crises.  She rates the most prominent factor, as being real interest rates and as with the Gold Monitor, the consultancy uses the US 10-year Treasury Inflation Protected Securities (TIPS)  interest yield as a primary defining factor.  As with gold there is close correlation between this and the metal price. In Scenario A for example Schieven assumes the US 10-year TIPS yield moves back slightly above zero over the forecast period; in Scenario B the TIPS yield moves increasingly negative to around -1.5%; in Scenario C the TIPS yield moves more aggressively negative towards -2%. 

As a guide most central bank forecasts in recent weeks is for these rates to stay very low for the foreseeable future. The Bank of England is reportedly even looking into negative rates, and the U.S. Federal Reserve’s recently-adopted average inflation target is around 2%, which the ECB is now considering following.  The Federal Reserve’s recent projections even suggested real-interest rates reaching minus 1.63% by 2020.

The second major variable  that Schieven suggests is driving the silver price higher in her baseline outlook is global liquidity. In Murenbeel & Co.’s models a calculation of the US monetary base plus FX reserves is used. Global liquidity has increased 13% per month for example since March of this year.  In the Scenario A outlook global liquidity levels off; in Scenario B global liquidity increases by around 4%; and in Scenario C global liquidity increases 8% over the outlook time period.

The third principal variable is an allowance for financial market stress and geo-political crises which probably the most challenging variable to both measure and to predict as these would include  the ‘black-swans’ that cause major unexpected disruption in economic and financial markets.  The COVID-19 global pandemic is perhaps an extreme example. 

The ever-continuing relationship between gold and silver prices also has to be taken into account.  Historically a rising gold price has seen silver prices rise more sharply – ‘gold on steroids’ has been a description.  Conversely, when gold falls back, silver dives even faster as we have seen in the past few weeks.  The Murenbeeld gold price scenario – due to be updated in next week’s Gold Monitor – has been predicting a bullish outlook for gold, which has to be positive for silver too.

All in all the publication of the Silver Monitor is a welcome addition to the Murenbeeld & Co. team's independent  research.  The initial publicity for the newsletter suggests it may delve deeper than just covering silver – copper coverage is mentioned as a possible option, although whether this would be in another separate newsletter is not really specified.  The Murenbeeld consultancy has also signed up Colorado-based Dr. Tom Brady – former chief economist for Newmont – to assist in input.  To subscribe to the new newsletter, or the Group’s other economic publications, one can do this via the Capitalight website.  The second edition of Silver Monitor is due out in a week's time.

18 Oct 2020 | Categories: Gold, Silver

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