If you follow the markets closely, you must have probably noticed that silver prices have been spiking recently. Both gold and silver have languished in recent years following their highs around the time of the Great Recession.
Given today’s economic and political conditions around the globe, it appears that it is now silver’s time to shine. Let’s take a look at seven reasons on how the price of silver is increasing, and should continue to rise in the coming years.
1. Global Economic Slowdown
Although the United States has enjoyed steady economic growth in recent years, there are clear signs mounting that the global economy is slowing down. Some countries in Europe are even flirting with recession territory.
If this situation continues, international trade will take a big hit. Even though the U.S. is doing well right now, a slowdown in trade will eventually hurt its exports and the economy. Although the overall economy may start slumping, this is good news for silver prices.
2. China Trade War
As if the global economic situation was not dire enough, the current trade war between the United States and China could also have positive implications for silver. A slowdown in trade between the two economic powers could further exacerbate the current dip in global trade and negatively impact the economies of both countries.
China is already seeing some negative effects as a result of the trade war. Although the United States is not as affected as China, any slowdown in exports will eventually take its toll on the US economy. This is bullish for silver.
3. Low Supply
Precious metal mining goes through a predictable cycle that can be seen over time. The recent low prices in gold and silver have led to mining companies cutting back their costs. They have cut back significantly on exploration and production. Over time, this leads to less silver being mined and a shortage in the precious metal. Even without increased demand, a supply shortage will result in a higher silver price.
4. Increased Demand
If you’re wondering, why is silver going up, remember that silver is not immune to the laws of supply and demand. Highly populated countries like India have seen an increase in demand for silver in recent years. In 2018, China imported almost 225 million ounces of silver. This represents a 35 percent increase over 2017.
Silver is also enjoying increased demand in the form of silver jewelry. In fact, the demand for silver jewelry is projected to reach a record level in 2019. Silver jewelry purchases are expected to increase globally because of its design diversity, profitable retail margins, and excellent quality.
5. Silver Relative to Gold
One reason that silver is in strong demand is because it is less expensive than gold, making it more affordable to purchase. Silver is also a more versatile investment because it is both an industrial metal and a precious metal. You can achieve higher returns from silver than gold because it is a fraction of the price of gold and should reap larger percentage gains than gold during a precious metals bull market.
6. Political Uncertainty
Generally, markets hate uncertainty. However, precious metals such as silver often perform better when things are dicey. The most recent run-up in silver prices occurred during 2016, a bitterly contentious presidential election year in the United States.
With the next presidential election looming in 2020, you can expect another spike in silver prices due to the increasing political dysfunction that has been on display over the last few years.
7. Possible Recession
As mentioned earlier, the United States is in a relatively good position economically compared to the global economy right now. However, slowing global trade and a trade war with China could send it into a recession before much longer. The current economic recovery is also extremely extended.
One accurate predictor of economic recessions is the annual survey of Chief Financial Officers. The most recent survey in late 2018 revealed that 48 percent of U.S. CFOs felt that the U.S. would be in a recession by the end of 2019. Additionally, a whopping 82% believe that the U.S. economy will be in a recession by the end of 2020. All of this bodes well for silver.
After suffering from dismal market conditions over the last few years, things look very bright for silver. This is especially true when you consider that gold has outpaced silver recently. Silver has some catching up to do and should outperform gold over the near-term.
Recent consolidation among mining companies, low supply, political and economic uncertainty, and other factors all add up to a much higher price for silver in coming years.