Silver Price Forecast for the Next Three Months
March was not kind to precious metal bulls, but silver still ended the first quarter up an impressive 13.08% at around $16.00 per ounce. That momentum is expected to continue with a silver price forecast for the next three months of at least $20.00 per ounce. Thanks to uncertainty about the U.S. economy, concerns about President Trump’s ability to fulfil his campaign promises, geopolitical tensions, and an overvalued stock market, a much more aggressive silver price prediction for Q2 of 2017 in the $25.00 to $27.50 per ounce range is not out of the question.
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Chart courtesy of StockCharts.com
Most analysts were bearish on silver as we entered 2017. Silver prices got hammered after Donald Trump won the U.S. election in November. While silver prices advanced around 16% in 2016 (the best annual performance since 2010), silver ended the year 27% lower over mid-November highs of $19.00 per ounce.
Main Street and Wall Street decided that Trump’s pro-growth business policies, including slashing taxes and increasing spending, would help boost corporate profits and finally get the sluggish U.S. economy into gear.
That changed in 2017. Despite a soaring stock market and strong U.S. dollar, silver prices rebounded. Following gold’s lead, silver prices moved on uncertainty about what the U.S. would look like under a Trump presidency, fears of a tariff war with China, geopolitical uncertainty, rising inflation, and rising tensions with countries like North Korea.
By March 1, silver prices had increased 16%. All that changed on March 2; investors turned their back on silver and gold on expectations that the Federal Reserve would raise its overnight lending rate by 25-basis points. It was projected to be the first of three rate hikes in 2017.
A rate hike is a vote of confidence from the Fed that the U.S. economy—and by that, it means Americans—is strong enough to handle the increased rates. Changes in the federal funds rate typically get passed onto customers by the banks in the form of fee hikes for those borrowing for credit cards, car loans, mortgages etc.
A rate hike also strengthens the U.S. dollar. This is bad for precious metals since silver, being the so-called “poor man’s gold” is a hedge against economic uncertainty; rate hikes and a strong dollar are an ominous sign for non-yield bearing assets like silver.
But even that sentiment didn’t last for long. Silver prices rebounded in mid-March on the heels of the Feds dovish outlook on the U.S. economy, closing out the first quarter up 13% at $18.51 per ounce.
Many thought the Fed would raise rates four times in 2017, but the Fed hinted it may only raise rates three times, and even then, more gradually than many anticipated. The dovish tone for the U.S. economy is good news for silver bulls and the silver price outlook for the second quarter of 2017.
Silver to Remain Bullish on Economic Uncertainty
As a hedge, investors turn to silver and gold because they want to profit when things aren’t going well. That’s not a strategy that appeals to every investor; most like to make money when stocks are going up. But that’s the mindset you need as a precious metal bull. If the markets are crashing or there is a terrorist attack somewhere in the world, you need to capitalize on the unfortunate opportunity. Either that or sit on the sidelines and watch your retirement portfolio disappear like a vapor trail. There are a lot of reasons to think the silver price forecast 2017 is going to remain bullish.
First, the U.S. economy remains fragile. This has major implications that will affect consumer confidence and the stock market. Investors flocked to silver during the Great Recession and in the beginning of 2016 when the global markets started to crater. And will do so again.
Silver prices will continue to be bullish in 2017 because the U.S. economy is not doing as well as many expect. U.S. unemployment is at an impressive 4.7% but the unemployment rate is near an unimpressive 9.5%. Household debt is up, wage growth is barely there, and most Americans have little to no savings.
This might explain why U.S. GDP has been so brutal. I enter as evidence: In 2016, U.S. GDP was 1.6%, the worst reading since 2011. It was also the fourth-worst year over the last quarter century. This makes 2015 U.S. GDP of 2.6% seem grandiose. Which it isn’t. (Source: “Gross Domestic Product: Fourth Quarter and Annual 2016 (Third Estimate),” Bureau of Economic Analysis, April 3, 2017.)
Before the financial crisis, you could expect the strongest economy in the world to put up GDP numbers above three percent. That target is unreachable right now. Since 2008, U.S. GDP has averaged just 1.25%. (Source: “GDP Growth (annual %),” The World Bank, last accessed April 3, 2017.)
A stalling U.S. economy will make physical silver, silver stocks, and silver mining exchange traded funds an attractive investing option. And it could usher in significantly higher silver prices in the second quarter of 2017.
Silver Could Soar on Premature Q1 Rate Hike
The eurozone (the world’s largest trading region), was once a millstone on the global economy, but it isn’t any more. The 19-member economy reported 2016 GDP growth of 1.7%. (Source: “Euro zone growth outpaces the US for the first time since the 2008 crash,” CNBC, January 31, 2017.)
For the first time since 2008, the height of the financial crisis, eurozone GDP has outpaced U.S. GDP. Despite the better-than-expected 2016 GDP growth, the ECB has no plans to taper its quantitative easing policy or raise rates. This raises an interesting question: why is the U.S. raising rates when it’s not doing as well as the eurozone?
Recall if you will, the Fed hinted it would start to raise rates when U.S. GDP was between two and three percent, natural unemployment near 4.7%, and inflation near two percent. The Fed has reached these target, but the underlying U.S. economy is still weak. Regardless, the Fed has started to hike its key lending rate.
The eurozone on the other hand, has better GDP, inflation has hit two percent (the first time in four years), and unemployment is at an eight-year low. But, the ECB has not said it is going to start raising rates. What gives?
A premature rate hike could easily derail the eurozone and U.S. economies. For now, the eurozone is staying put until it sees evidence of more sustainable growth. Here in the U.S., the Fed is charging ahead into uncharted waters.
Fortunately, we know what can happen when rates rise prematurely. In December 2015 the Fed raised rates for the first time in a decade. The markets decided it was too soon, and stocks tanked in January 2016.
The Fed held off on expected rate hikes until December 2016, when it raised rates for just the second time in a decade; or the second time in 12 months. We’ll never know what a rational market would have done because it was too enthralled in what a Donald Trump presidency would look like.
We’re starting to get a look at what it will be, and it’s not a cake walk to financial freedom. Trump faces many hurdles, any number of which could cobble his campaign promises. This could make the already fragile U.S. economy stumble even further. Silver prices on the other hand will react positively to any uncertainty in the second quarter of 2017, and could easily push through resistance near $18.50 an ounce and close in on $20.50 an ounce.
Silver could also get an additional boost if the Fed decides to hold off on its next expected rate hike.
Silver Remains Attractive as Trump Administration Stumbles
Investors may have recently gotten a sneak peek into the future of silver prices. The Fed’s dovish take on the U.S. economy is one thing, but Trump’s inability to make deals on Capitol Hill is another.
Silver prices have been strong since the Trump administration withdrew its healthcare bill on Friday, March 24, 2017. Why? Trump campaigned hard on just how awful Obamacare was and how he would give the American people a better alternative. It failed, for a number of reasons, and was shelved.
With the American Health Care Act (AHCA) temporarily in the rear-view mirror, Trump said he was moving on to his tax cut plans. Except we now know that his campaign promises are not low hanging fruit. The withdrawal of the healthcare bill raises concerns about whether or not President Trump will be able to fulfil his other campaign promises.
Trump’s proposed tax cuts and spending is a big part of how he proposes to get U.S. annual GDP to four percent. Failing to do this will not just put his entire presidency in jeopardy, it will put unsustainable stress on the U.S. economy and put the long-in-the-tooth bull market in jeopardy.
This will put the shine back into silver. Silver has been bullish on just the whiff of gridlock in Washington, if Trump is unable to do what he wants, you can bet investors will get anxious. This bodes well for silver prices in the second quarter and 2017 in general.
Silver’s Industrial Use to Boost Prices
Unlike gold, which is used primarily as an investment tool and in jewelry (though 12% does go to industrial use), silver has a myriad of industrial uses. In fact, approximately 65% of the annual silver supply is used in industry. This means that silver prices can do well when the markets are going up and down.
Gold glitters but silver is indispensable. It is the most electronically conducive, reflective, and thermally conductive. We cannot live without silver. Silver is used to solder, in batteries, dentistry, glass coatings, LED chips, medicine, photography, semiconductors, nuclear reactors, touch screens, RFID chips, water purification, and wood preservatives. Silver is also used in wiring for cell phones, solar cells, and chemical reagents.
The biggest demand for silver comes from the U.S., Canada, China, Japan, Germany, India, South Korea, and Russia.
While the demand for silver remains strong, and will get even stronger, stockpiles are falling. Central banks used to hold large quantities of silver, but most have exhausted their supplies. The only countries that currently warehouse silver are the U.S., India, and Mexico.
The main reason governments no longer hold silver is because it is not used in coins. But there are a number of reasons why silver prices could soar. If there was a supply shortage, monetary crisis, or spike in demand from investors, silver prices would rocket.
Silver Prices to Soar as Stocks Crater
Investors turn their attention to precious metals like silver when stocks start to fall. They flock to silver and gold when the markets start to crater; silver prices soared in the early 80s, 1987, 2008, and the start of 2016. And investors will send silver prices soaring again when the current, nine-year-old bull market, takes a well-deserved dive.
What could send the markets lower? Two key factors, weak earnings and geopolitical tensions.
Stocks Significantly Overvalued
According to every major ratio, stocks are significantly overvalued. Investors have sent stocks to record levels on the hopes that President Trump will rejuvenate the sluggish U.S. economy.
In 2015, the S&P 500 declined 0.7%. In the year-to-date lead up to the U.S. election, the S&P 500 advanced around five percent. In the four months following the November election, the S&P 500 soared almost 10% and continues to trade near record levels.
But those unsustainable lofty heights didn’t come from strong earnings and revenue growth. They were fueled by artificially low interest rates. Now that the fuel is being siphoned off, investors are going to have to turn their attention away from technicals and momentum to boring things like fundamentals.
Eventually investors will wake up to see that they are paying an exorbitant amount of money for stocks. Investors did it in March 2000 and they’ll do it again. Just like the dotcom bubble, no one knows when the air will start to come out of the market, but the selling will start, and it won’t stop.
The current record levels aren’t being supported by excitement anymore, they’re being held up because investors are patiently waiting to see if Trump can deliver on his promises.
How far will stocks fall? Quite a ways. According to the Case-Shiller cyclically adjusted price-to-earnings (CAPE) ratio, the S&P 500 is overvalued by more than 81%. The ratio stands at 19, the long-term average is 16. It has only been higher twice, in 1929, when it was at 30, and in 2000, when it was at 45. (Source: “Online Data Robert Shiller,” Yale University, last accessed April 4, 2017.)
The S&P 500 has a long way to go before it gets to the dotcom levels. Hopefully it won’t get that high. Now granted, eye-watering stock valuations don’t necessarily mean stocks are going to crash. BUT, history does show us that it never ends well.
At least it doesn’t end well for stocks. Silver prices do well.
Growing Concerns About North Korea, etc.
Investors seek safe haven assets like silver when geopolitical tensions start to simmer. Should they boil over, the demand for silver will unstoppable.
North Korea is as unstable a country as you can get. Kim Jong-Un, who allegedly had his half-brother assassinated, continues to taunt the rest of the free world with threats of nuclear war.
To date, the words have been nothing but bluster, but there is growing concern that the mentally, emotionally, and physically unstable Kim Jong-Un is entirely prepared to use his country’s growing arsenal of nuclear weapons on the U.S. and its allies. Kim Jong-Un allegedly tested an intercontinental ballistic missile (ICBM), which would, in theory, put the mainland U.S. within striking range.
Trump has said that if China, which holds great influence over North Korea, isn’t going to step in and solve the issue, the U.S. will. Asked if Trump would go it alone, he said, “totally.” (Source: “Trump: US will act unilaterally on North Korea if necessary,” CNN, April 3, 2017.)
Suffice it to say, any declaration of war would be bad for the world, but good for silver and gold prices.
Speaking of which, former vice president Richard Cheney said recently that Russia’s meddling in the U.S. election was “an act of war.” This growing tension is certainly not good for international relations with Russia. Trump’s promised tariffs with China and Mexico and virtually every other country could seriously undermine the U.S. economy and hurt international relations even further. Then there’s growing concerns over the United Kingdom’s decision to leave the EU. (Source: “Cheney Calls Russian Election Meddling ‘act of war,’,” The Washington Times, March 28, 2017.)
Whether it’s an all-out physical war or trade war, silver prices could soar well above any recent projections, and could even challenge all-time highs near $50.00 per ounce.
Silver Price Analysis and Forecast for Q2 2017
Despite these growing concerns, consumer confidence is at a 16-year high and investors continue to keep stocks near record levels. Any combination of the above issues could send silver prices to unexpected levels.
Whether it comes from a premature rate hike, weak economic data, stalling economy, gridlock in Washington, increased demand, stock market correction, or geopolitical issues, a precious metal analysis for silver prices in the second quarter and remainder of 2017 is bullish.
A silver price forecast for Q2, 2017, of $20.00 to $27.50 per ounce seems plausible even in the current environment. If any combination of the above situations come to fruition, silver could break out even higher. Going forward into the third and fourth quarters of 2017, expect silver prices to give up some ground and resume a march higher.
