Silver Price Forecast 2020 Shines, but Upside Depends on Business Cycle
My silver price forecast 2020 is forging higher, based on strong positive catalysts. I’ll highlight three catalysts that are working in silver’s favor and present an end-destination forecast. The running of the silver bulls is close at hand.
Before I move forward with my reasoning for higher silver prices, let’s get some of the not-so-positive news out of the way.
Similar to my gold price forecast for the next 10 years, silver’s near-term fundamentals are somewhat mixed. The economy is growing at what can best be described as a “moderate” pace. But this moderate growth is much less than the gross domestic product (GDP) trend growth in previous business cycles, which reduces consumer demand somewhat. Tepid consumer demand usually results in lower industrial end-use demand, which works to cap prices.
Like gold, silver’s precious metal qualities have been subdued in recent times. Soaring equity prices and record-low volatility have curtailed the wall of worry—for now. But those dynamics should change over time. Another round of extreme monetary easing, combined with a geopolitical firestorm, could make risk premiums a factor once again.
Three Catalysts for Silver Prices to Rise
With the silver price per ounce hovering between $14.00-$21.00/oz since July 2014, silver has been an underperforming asset. Like gold, silver can’t seem to catch lasting momentum in either direction. For investors with short-term horizons, the price action is bound to frustrate.
That being said, I believe that certain factors will work in silver’s favor. Silver’s price action is historically cyclical. As such, timing the entries is critically important. I believe that the time is coming, however, when silver should be over-allocated into individual portfolios. Here are three reasons.
1. No Growth In Silver Supplies
According to the U.S. Geological Survey, America only produced 470,000 oz of silver in the first five months of 2017. A year ago, it was 482,000 oz. Lower supplies aren’t just an American anomaly; it’s happening throughout the world.
Total silver supply decreased by 32.6 million ounces in 2016, led by a 11% drop in demand. Perhaps shockingly, Mexico registered the largest decline in production last year, followed by Australia and Argentina. Mexico is traditionally the largest silver producer in the world. (Source: “Global silver output falls for first time in 14 years,” Mining.com, May 11. 2017).
Leading the charge to cut back production are the big silver producers, who have little incentive to find more supply. Typical all-in sustaining costs (AISC) in the sector are around $10.00-$14.00/oz, so many producers aren’t making much money with silver prices stuck in the mid-teens.
The only thing that will incentivize exploration is a higher spot price. I predict that this could happen at the advent of a new business cycle when prices and industrial demand ramp up in conjunction with one another.
2. Technological Demand
The winds of change regarding industrial silver demand are blowing. Industrial demand is falling in some traditionally strong areas, like electronic appliances (miniaturization) and photography (shift to digital). This has certainly hampered the demand curve in a significant way.
But new industries are emerging that could ramp up demand to a higher plateau.
Purchases from the photovoltaic industry jumped 34% in 2016, driven by a 49% increase in solar panel installations. The amount of silver consumed totaled 76.6 million ounces, which was the highest amount since 2010. The number of global solar panel installations increased exponentially as well. Driven largely Chinese and American growth, installations climbed 126% and 95%, respectively. (Source: Ibid).
Whether the increase in new tech can fully make up for the losses in traditional industrial silver demand remains to be seen. The photovoltaic industry, while not new, still offers plenty of mainstream adoption upside.
3. Increasing Investment Demand
Retail investment demand has played a huge part in silver’s run from $10.00/oz to $50.00/oz since the U.S. Housing Bubble. Back then, the U.S. Mint was regularly selling out of silver eagle coins, and shipments from bullion dealers were delayed for weeks on end. Retail investors couldn’t get enough. The massive stimulus and balance sheet expansion undertaken by the Federal Reserve spooked investors and sent the U.S. dollar lower.
Over time, however, investment demand waned as the U.S. economy gained traction. So much so that, by 2016, silver coin and medals fabrication fell by nine percent from the 2015 record highs. Total physical demand fell by 11%, tumbling on weak jewellery, silverware and retail investment. After profound resilience by retail investors up until 2015, investors finally threw in the towel. (Source: Ibid).
Risk assets have won the battle against silver for now, but I don’t expect that will last. Similar to the 2009–2011 period, the silver price outlook in the future will rebound once a new business cycle comes to pass. Why? Because once the recession hits, the Federal Reserve will likely jump the shark and stimulate the economy even more than in 2008. It has to, as its takes an ever-increasing amount of fiat currency to produce a similar effect on the economy.
If investors were fearful of the fiscal condition of Uncle Sam in 2008, wait until the next recession hits. The next one is likely to be global in nature, as most countries are subsidizing consumer demand through low interest rates. Low interest rates are possible through central bank bond purchases, which blows up their balance sheets. Low interest rates also cause sovereign nations to borrow more than is fiscally responsible.
Bottom line: Expect silver investment demand to return with a vengeance. The hemorrhaging silver supply will act to support prices.
Silver Price Forecast 2020
Silver price predictions for 2020 have as much to do with timing as anything else. If (somehow) the current U.S. business cycle doesn’t slip into a recession and is still expanding by 2020, the silver price forecast will be subdued.
However, if a recession takes hold, like I expect it will by the end of 2019, the sky’s the limit for silver prices. A U.S. recession will trigger the Federal Reserve to act, creating another round of stimulus and monetary dilution. Stock markets will likely plunge, turning silver investment outflows into inflows. There will likely be panic and concern about the viability of the U.S. dollar, as America’s deficits soars.
Whether the U.S. dollar declines right away is an open question. Sometimes the dollar strengthens during periods of crisis (the “least dirty shirt” hypothesis), but it could easily be abandoned this time around. For the first time since Richard Nixon completely broke away from the gold standard, the dollar’s reserve currency status is under threat.
China and Russia have announced a bilateral agreement to conduct trade in rubles and yuan. Iran vowed to ditch the dollar in response to Trump’s “Muslim ban.” Venezuela is actively pursuing the same policies. I have no doubt that more countries will seek to end this hegemony.
Obviously, a crashing U.S. dollar would help boost silver prices in direct proportion to the strength of the decline. The silver price forecast 2020 has moderate reliance on the arrival of a weaker U.S. dollar.
Expected Silver Price In 2020
Working on the following three assumptions, I expect silver prices to soar.
- a recession will have come by 2020,
- stimulus measures undertaken by the U.S. government and the Federal Reserve will match or exceed those undertaken post-U.S. Housing Bubble, and
- technological demand will fill or exceed the gap left by losses in traditional industrial demand.
I have an initial $50.00 price target, roughly matching the previous highs experienced in 2011. From there, I will re-evaluate that target as silver fundamentals change.
Silver Price Chart
Keep in mind, the position of the post-recession recovery matters. If the economic expansion is still grinding upward in next decade, the silver price forecast 2020 may be delayed. Silver is likely to take off near the end of the recession when investor fear is highest and industrial demand is on the cusp of turning. If the past two post-recession moves in silver prices are any indication, my price target may prove to be conservative.
How about some silver price predictions for the next decade? I’ll pass. There’s not enough visibility to ponder that question. I’ll have a better feel for supply, new demand, and investment demand dynamics once this amazingly long (but weak) U.S. business cycle finally ends.
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Silver Prices in 2017: This Chart Shows Silver Prices Could Hit $100