Sunday January 11, 2015, 10:10pm PST
By Charlotte McLeod+ - Exclusive to Silver Investing News
In 2015, the majority of market watchers expect a fairly muted performance from silver, with most anticipating its price will average between $16 and $17 per ounce.
That might sound a little bleak, but it’s important to keep in mind that there are at least a few trends that may act to boost the silver price in 2015. Here’s a quick look at three of them.
1. Price ratio adjustment
Silver Investing News has discussed the gold/silver ratio fairly extensively in the past, and was told last year by Andrew Chanin, co-founder of the PureFunds ISE Junior Silver ETF (ARCA:SILJ), that while the metals usually trade at a 65:1 ratio, he believes that ratio is “out of whack due to the ratio [silver] is being mined” and thus due to change.
He’s not the only one who believes the ratio is set for an adjustment. In a recent Motley Fool article, Matt Smith states that some analysts believe that the ratio will drop to 60:1 during 2015. That could be positive for the metal because “[i]f this were to occur silver prices when using the current gold price of $1,188 per ounce would need to rise to roughly $20 per ounce, offering 26% upside from their current level.”
Since that article was written gold has risen above the $1,200 mark, but overall the principle still holds true. The idea has also been recently discussed by Andrew Nyquist at Investing.com.
2. Higher industrial demand
As silver aficionados are well aware, the white metal has a dual role in that it’s in demand as both a precious and industrial metal. However, according to Smith, it’s the latter that will be key in 2015. As he points out, a recent report from the Silver Institute indicates that industrial demand for silver is set to rise 27 percent through to 2018 from 2013 levels — he believes supply will be unable to keep up as that rise takes place.
Smith points to demand for photovoltaics as likely to be particularly strong as “a number of nations including China, Germany, and Japan [commit] to boosting clean energy production through solar power between now and 2018.” Meanwhile, the Silver Institute identifies batteries, ethylene oxide, anti-bacterial and bearings as applications for which it has high expectations.
All that said, it’s important to keep in mind that even if silver demand outstrips supply in 2015, the metal’s price may not rise — indeed, according to Smith, that’s exactly what happened in 2013. However, in his mind, falling exploration and development activities from silver companies may exacerbate the situation.
3. Physical market strength
Finally, a recent Seeking Alpha article from Gold Silver Worlds points out that physical silver demand — for investment purposes, not industrial — should continue to be strong. It notes that the US Mint experienced record silver coin demand in 2014, also stating that “silver’s physical ETF holdings have held up very well” over the last couple of years in comparison to those of gold.
While the report doesn’t predict substantial price movement for silver in 2015, it points out that physical market strength is a factor that underscores the idea that “there are some favorable trends playing out ‘under the hood.’”
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
