Silver Prices To Move Higher As Demand Increases
Pay close attention to silver prices. This may sound bold, but the gray precious metal could be the next big trade in the making.
No matter how you look at it, silver prices are setting up nicely to provide investors with big gains in the long term. What we see is the demand for the precious metal surging.
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Consider this: the U.S. Mint has sold over 30 million ounces of silver in American Eagle coins alone. (Source: “Bullion Sales/Mintage Figures,” U.S. Mint, last accessed September 22, 2016.)
The U.S. Mint’s “America the Beautiful Silver Bullion” coin sales have reached 256,300 coins year-to-day. Each coin weighs five ounces of silver, which totals up to 1.28 million ounces of silver in all. Also, the sales of these coins is already up 16% compared to previous year, the U.S. Mint having sold 212,000 America the Beautiful Silver Bullion coins in 2015.
Keep in mind that we are currently seeing this phenomena prevail across the globe. Major mints around the world are reporting increased silver sales.
In addition to this, we also see that countries like India are becoming interested in silver. For instance, in August, $130.0 million worth of silver was imported into India, but over the last one year, we have seen silver import figures much bigger than that. (Source: “Quick Estimates For Selected Major Commodities For August 2016,” India Ministry of Commerce and Industry, last accessed September 22, 2016.)
But that’s not all. Look at the chart below before we go into any details:
Chart Courtesy of StockCharts.com
You see, silver prices have been trending higher since the beginning of the year and the trend to the upside is very strong. We saw the trend was tested several times (circled area), but the price continues to show resilience. This shows buyers are present and that they are buying on dips.
Also, year-to-date, silver prices are up over 40%. Looking at this, one could say that silver prices are in a bull market.
Speaking from experience; investors’ behavior is very interesting. They tend to buy assets that are increasing in value and pay very little attention when prices are down and providing the greatest value. So as silver prices continue to trend higher, it won’t be shocking to see investor demand increase.
Look at silver from a valuation perspective, as well; silver prices seem undervalued.
One of the best measures to examine the value of silver prices is the gold-to-silver ratio. At its very core, this ratio tells us how many ounces of silver it takes to buy an ounce of gold. As such, please look at the chart below:
Chart Courtesy of StockCharts.com
Over the past 20 years, the gold-to-silver ratio has been trading in a range, with 80 being the top and around 45 being a bottom. Currently, the ratio looks to be moving towards 45. If this happens, and we assume that gold prices remain at $1,350, then silver prices would have to increase to about $30.00. This is 51.7% higher than the current price.
Silver Prices Outlook For 2017
Silver prices have had a solid run so far in 2016. It wouldn’t be shocking to see prices remain range-bound until the end of the year. Why? Mainly because of profit taking.
Starting in 2017, we could see renewed interest in the gray precious metal. Investors have ignored the metal for the past few years. In 2017, silver could be the biggest comeback story.
With all this in mind, silver mining shares are really worth a look. If silver prices go to $50.00 in the next few years, mining companies could generate obscene returns for investors.
