Saturday, March 25, 2017

Silver's Moving Up & Leading the Way in this Precious Metals Bull Market

Good opportunity to Buy on the Dip

The recent pullback has seen silver retreat around 10% from its high earlier in 2017 presenting a good opportunity to average down or purchase more at a lower price level in the short term.

1 - 5 Year Outlook for Silver:

Strong fundamentals with a positive long-term outlook of Silver & precious metals, in general, remain intact despite the recent retreat in spot price & futures markets with macro commodities prices & major producers share prices likely responsible for dragging down the entire sector

The recent price rallies in base metals has seen a commodity sector revival with hot material metals such as Lithium and most recently cobalt attracting investment equity.

With US spot silver at under $18 there is minimal downside risk with a robust & ongoing industrial and jewellery demand and with silver being the metal with more patented applications than all other metals combined*, yet the upside on paper at least with silver breaching $50.00 in 2008 and with continuous global monetary stimulus and the rise of Brazil, Russia, China and India all of whom are anticipated to demand the low cost white metal and increase aggregate demand.

The above chart from 2000 through to present shows just how much upside silver has from this level wherein the short a one year time frame $30 is not unrealistic, sustained increased demand should see a robust price and a move up to a level above $20 US in the short term, an adjustment in the Chinese Yuan & other US trade partners would see increased demand as the purchasing power of these trade partner currencies increase also having the effect increasing competition for the finite resource with increasing applications and human demand by the day. The question then becomes - can supply keep up? Any supply reduction could easily trigger a run on physical which will trickle up to the Commodities Futures Exchange Markets with Silver Contracts being purchased with the intention of taking delivery.   

The Gold Silver ratio

Much attention is paid to the gold/silver ratio by industry insiders and gold silver bulls (and bears for that matter) and it is said that during a precious metals bull run Silver leads the way and will overperform vs gold as it takes less demand and equity to push the price up when the market turns.

Today's ratio of 70:1 is closer to the maximum variance of 83:1 indicating 
we have moved off the short-term low and will now move up with the likelihood of ending the cycle under the 10 year low of the cycle previous cycle

The Trump Card: Effect On Silver...

Donald Trump has spoken explicitly about wanting to end currency manipulation specifically addressing trade partners China and Japan and expressing a need for the United States to weaken its dollar to support its manufacturing base and exports for the purpose of improving the balance of trade. There are a number of factors reducing the likelihood of this eventuating and increasing the likelihood of this being rhetoric rather than a serious new economic course the US is set to embark on such due to any such fiscal policy change adversely affecting the economy as the current debt to overseas governments and private banks & a decrease in consumer purchasing power for imported goods.

The TRUMP card, what effect will Donald Trumps Presidency have on the price of Silver
On the surface a weakening US dollar would serve the purpose of increasing all imported goods including commodities overall and silver specifically, another key change is servicing the overseas debt and a weakening dollar would require more dollars to pay the same fixed debt payments putting the US economy under more pressure and requiring money to be diverted from other sectors or by issuing more currency through quantitative stimulus which will add velocity to the money supply which is necessarily inflationary (the combination of a weaker dollar and inflation will be a thorn in the side of US citizens acting as a double whammy of decreased purchasing power and increasing costs for goods and services).

For the US to engage in a successful devaluation, global trade partners must lock fiscal and monetary policies to allow this currency re-evaluation, as all reserve banks can inflate away at their desire also  any talk of currency manipulation was likely just lip service to the US manufacturing base to rally support during the presidential race, in the meta we understand this to be currency wars 3.0.

Write-up by Joseph Gale, Charts from Kitco

#silver #investment #goldsilver #josephgale #metals