Posted By Isaac Nuriani
The price of silver took off in late 2008, climbing from about $10 an ounce to almost $50 in early 2011. Since then, it has suffered the fate of nearly every other commodity, entering into a long slide that took the price down to $14.14 an ounce. However, recent indications suggest that the grey metal’s price has stabilized and may be entering a bull phase.
Silver’s price recovery is possible when demand outstrips supply. What’s putting a floor under silver’s price is that zinc and lead mines have been shutting down in the last year as a result in the worldwide bear market in commodities. As it happens, a third of the new supply of silver is a byproduct from these base-metal mines. Should the mine closings continue apace, experts such as Dutch Economist Willhem Middelkoop foresee a global shortage in the silver supply developing now and peaking in 2020.
Silver has a different usage profile from gold’s. Whereas just about every ounce of gold ever mined is available for resale, silver has industrial uses that deplete its supply. The last 30 years has seen a decline in silver supply due to large production cuts at mines that produce silver. Thus, a steady demand for the metal coupled with accelerating depletion appears to be fueling a significant deficit in silver.
Although central banks keep plenty of gold on deposit, silver is no longer kept at these banks, meaning they carry no large inventory of silver to depress market prices. Silver available for coins has been instead diverted to industrial uses, cutting the ability of national mints to meet the demand for silver coins.
Middelkoop warns of shortages in gold and the other precious metals as well.
Another factor supporting silver prices is the probability that the Federal Reserve will not be raising interest rates much more in 2016. Sentiment shifted quickly after the horrible stock market performance in January. This was followed up by a weak Non-Manufacturing Index and a mixed Unemployment Report, all suggesting that inflation remains subdued. Low interest rates help silver, because puny bond returns provide little competition for investor’s cash.
The immediate upside target for silver is $15.30 an ounce. Therefore, we believe now is the time to add silver to your IRA. If you’d like to set up a new Precious Metals IRA, please contact us at your earliest convenience!
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