When investment banks published their 2014 forecasts at the end of November, the figures did not make good reading for the precious metals market. The majority of verdicts is that gold and silver prices will continue to fall this year indicating 2014 is a time to buy silver, not sell it!
However, some market watchers have adopted a different opinion and believe the silver market will strengthen. With white metal prices currently floating around $20 per troy ounce, there is scope for silver to rally. But what are the chances of that happening?
Silver production costs
Analysts say it costs mining companies around $20 an ounce to produce silver. With spot prices floating around the same price point, it is impossible for mines to make a profit. Some mines have already ceased silver production and others are likely to follow suit, therefore pushing supply lower than demand. Subsequently silver prices will increase.
Commentators are also looking at the sustainability of the US economy. The Federal Reserve reduced the quantitative easing program this January by $10b which could possibly weaken the dollar. With China in a current exchange frenzy will several other nations, the benchmark for currency is unstable – which could make it a good time for silver.
Although it does seem inevitable the US Treasury will have to admit sooner or later that the countries dent issue cannot be resolved, the chances of that happening in 2014 look remote. With an emerging global economy, there is no way congress is going to admit the US is out of the running as a world economic power.
Now the global economy is getting stronger, companies have been given the green light to start investing again. This may signal a cue for electronic companies to ramp up their production this year. Given silver is used in numerous electronic devices, the demand for silver will increase thus pushing up prices.
There was also a greater demand for silver in the Asian market for 2013 than in previous years, but much of that was due to India restricting gold imports into the country thus making supply scarce and pushing up prices. As an alternative consumers invested in silver instead of gold.
Silver and gold prices are holding their own at the minute with slight variations either side of the current spot price, but nothing significant. This is most likely due to small time investors taking advantage of a poor performing market. And why not – now is the best time to buy silver.
Silver prices may be low today, but they will rise again. Nobody knows for certain when that will be, but there are many influencing factors that affect the spot price of precious metals. The principle driver however is the economy – how well is currency performing?
When currency is looking stronger, silver prices go down as traders do not feel pressured into hedge their investments. However, as history tells us, currency does not stay strong forever and will collapse eventually – especially considering the amount of debt the US is in. Buy silver now – sell when the prices sky rocket!