Price of Silver in 2015: Why It Could Bounce Higher

By Markets Fool.com


Silver bars. Source:Flickr user Sprott Money.

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In 2014, silver once again suffered a substantial loss, following up a 36% crash in prices during 2013 with more double-digit percentage declines. Yet even though investors have had to live through a crushing precious-metals market environment during the past two years, many investors now believe that the price of silver in 2015 could finally bounce higher and give bullion owners some long-awaited relief. Let's look more closely at what's moving silver prices, and how those factors are likely to affect silver prices in 2015 and beyond.

Can the price of silver in 2015 really rise?
Silver offers a unique mix of attributes of both precious and industrial metals. On one hand, silver has traditionally moved closely with gold, given the two metals' historical use in monetary systems around the world. Yet, to a much greater extent than gold, silver has many industrial uses, and industrial demand gives silver a more concrete connection to the health of the global economy than gold.

Source: Wikimedia Commons.

With respect to its status as a precious metal, silver hasn't gotten any favors from gold recently. Despite cheaper prices for precious metals, many investors worry that the coming rise in interest rates from the Federal Reserve will raise financing costs for holding bullion, and greater income opportunities elsewhere in the financial markets will lead to greater divestment of gold and silver. The strong U.S. dollar has also made silver more expensive in foreign-currency terms in many parts of the world, and that has held demand in check.

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At the same time, economic crosswinds throughout the world have held back industrial use of silver. Even though the U.S. economy has been strong, weakness in areas like Japan, Europe, and many emerging markets has held back silver purchases by industrial companies. With those regions foreseeing difficult times in recovering from recessionary conditions, they might not rebound enough to help boost the price of silver in 2015.

Price projections on silver (per ounce)

Forecaster Price

Commerzbank 2015 estimate

$17

HSBC 2015 estimate

$17.65

Citi Research 2015 estimate

$16.50

TD Securities 2015 estimate

$17.81

Natixis 2015 estimate

$15.20

Source: Analyst projections.

One area where silver has seen persistent support, though, is among retail investors in physical bullion. Sales of American Eagle silver coins hit new records in 2014, according to the U.S. mint. Moreover, with the Indian government having released restrictions on imports of precious metals, Indian buyers have boosted their appetites for both gold and silver.

Another trend favoring silver is that, in comparison to gold, silver prices are relatively inexpensive by historical standards. Many precious-metals investors look to the gold-to-silver price ratio for guidance about whether silver will outperform gold. Right now, the ratio suggests that silver prices have fallen too far in relation to gold.

Yet there's a lot of uncertainty about the direction of certain macroeconomic factors that influence silver. Dollar strength has weighed on the precious-metals markets, and many foreign-exchange traders believe that, given the magnitude of the dollar's advance, a reversal could be overdue. If the dollar starts to fall, it could send silver prices rising significantly due to greater overseas demand for the metal.

Other analysts, though, think that the relatively strong U.S. economy, combined with more attractive interest rates on fixed-income securities as the Fed pushes short-term rates higher, could continue to push the dollar's value upward. This could further exacerbate the negative impact on silver and other precious metals.

Watch alternative sources of supply
Silver also has to deal with other supply-and-demand-related influences on its price. For instance, many consumers have substantial amounts of silver in their households, and when prices rise, the amount of silver coming onto the market as scrap rises substantially. Given how far silver prices have fallen, scrap availability is expected to be quite weak in 2015.HSBC estimates that the industry will have supplies of about 155 million ounces of scrap silver in 2015, which would represent about a 40% decline from peak levels in 2011.


Silver ore pile. Source: Christopher Barker.

At the same time, investors need to watch silver miners to see how they react to the current price environment. Silver-mining stock ETF Global X Silver Miners has dropped about 20% this year, giving up substantial mid-year gains as silver came crashing back toward its 2014 lows recently. With bullion prices around $15 per ounce, many silver miners are nearing their break-even points of production. If some miners finally curtail new production substantially, it could finally mark a bottom for silver prices in the long run.

What silver investors should look for in 2015
Predicting precious metals prices is extremely challenging, with many projections ending up being shots in the dark. Yet even though many of the factors that have held back silver prices don't appear to be going away anytime soon, silver's two-year losing streak could get some value-minded investors finally thinking that now could be time for a break from the bearishness in the silver market. If that happens, then the price of silver in 2015 could end up going for a big roller-coaster ride in both directions at certain points of the year.

The article Price of Silver in 2015: Why It Could Bounce Higher originally appeared on Fool.com.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.