A breakout for silver is long overdue, and 2014 has all the markings of being the year of the white metal’s return…
After topping out at the $32-mark way back in January 2013, silver prices slumped 40% for the year.
Silver’s performance is worse than gold’s 28% drop for 2013, even though gold has been the scapegoat for much of the current bear market for metals.
Recent price forecasts by financial institutions isn’t giving the white metal much of a chance as we head into the new year:
- Barclays (NYSE:BCS) — $19.50 per ounce
- Morgan Stanley (NYSE:MS) — $21.01 per ounce
- UBS (NYSE:UBS) — $20.50 per ounce
- Bank of America Merrill Lynch — $26.38 per ounce
- Thomson Reuters GFMS — $20.42
- Bank of Montreal (TSX:BMO,NYSE:BMO) — $21
- Commerzbank (ETR:CBK) — $21.50 per ounce
However, seeing silver getting beaten down like it has, has gotten speculators thinking bargain-hunting…for a couple of reasons.
First of all, the industrial demand for silver hasn’t wavered — not in the least bit — despite the metal’s price volatility.
In the Thomson Reuters GFMS Interim Silver Market Review, industrial usage for silver is expected to account for 57% of total demand in 2014 — up 12% from 2013, and the highest percentage ever in its 25-year history.
And although an improving economic environment was a key driver behind falling metal prices the last two years, a steadily growing economy may actually help silver in the long-run due to the white metal’s industrial benefits.
According to the Conference Board, global GDP is estimated to grow from 2.8% in 2013 to 3.1% in 2014.
In the US, where silver consumption is tops in the world, GDP is anticipated to grow faster than the global average — climbing 0.7% from the meager 1.6% we saw in 2013. And that should mean an increase in silver demand for products such as smartphones, tablets, and other electronics.
Besides industrial consumption, lower prices have garnered pent up demand from individual investors wanting to buy physical silver.
To date, over 42 million troy ounces worth of silver American Eagle coins have been sold, a 24% rise from 2012. The US Mint actually surpassed last year’s total sale by a full six weeks.
Similar records are being broken around the world.
The Royal Canadian Mint reported 9-month sales of 19.7 million ounces for its Silver Maple Leaf coins, and are on track to beat last year’s record of 23.1 million ounces.
As for the third largest market, the Perth Mint of Australia has sold 7.8 million ounces so far this year — already well past last year’s entire amount of 5.3 million.
Bringing up the rear no less is China and India, the consummate precious metals lovers that they are.
India especially will be a catalyst as its government continues to curb gold buying by raising import duties in an effort to shrink the country’s swollen trade gap.
How silver sales pan out in 2014 remains to be seen, but over the past two months, prices have remained constant between $19 – $20, which suggests that there is investment support at that level.
Should demand continue to rise the way it has, prices aren’t likely to stay low for much longer.
It’s a cautious time for silver bulls, no doubt. But a stable 2014 could be the launch pad silver needs to bounce back.