However, some silver market watchers have higher hopes for the metal and believe that 2014 could bring increased silver market strength, as well as more impressive prices. Here’s a look at four of the factors they believe could make that happen.
1. Production costs
During the third quarter of 2013, silver mining costs averaged $21.39 per ounce, Tony Davis, owner of Atlanta Gold & Coin Buyers, states in an article published in The Paramus Post. That’s above the price that silver is currently selling for — $20.25 per ounce at yesterday’s close.
Davis believes that’s significant because “[i]t’s highly unlikely that current prices will remain below the cost of production.” His reasoning is that eventually mines that are not profiting in today’s price environment will close, reducing the amount of silver on the market. In turn, that lack of supply should push prices up.
After much speculation about when — and by how much — the US Federal Reserve would reduce its bond-buying program, the central bank announced plans at the end of December to lower it by $10 billion, to $75 billion a month, in January.
As Davis points out, that “will likely … result in a weakening of [the country's] currency,” as will the fact that foreign countries such as China are “enter[ing] into currency swaps with other nations.” That, as silver market watchers are likely aware, is positive for silver as well as for gold.
On a different note, John Whitefoot states in a recent Daily Gains Letter article that the reduction in spending indicates a “so-called” improving US economy. While that has “tempted some investors to move away from safe haven investments,” increased strength in the nation’s economy means that industrial demand for the white metal could pick up, raising silver prices in the process. If that happens, Whitefoot sees investors again turning to silver as a safe haven.
3. Oversold territory
Looking at silver from a more technical angle, Peter Zihlmann said in a Market Oracle article published this week that the white metal is currently in an oversold position that “is far worse than in 2008 or 2001.” Given that “[s]uch extremes have always been followed by strong movements to the up-side,” he believes that investors should buy now before prices jump again.
That’s a view that is corroborated by Whitefoot. In his article, he notes, “given the stunning gains seen on the stock market in 2013, many are calling for a correction of some kind in 2014.” In that scenario, silver and gold, which are currently undervalued, are the commodities that investors will turn to.
4. Asian silver demand
Finally, Davis touches on the fact that foreign countries, namely China and India, are importing increasing amounts of silver and gold. As SIN’s silver outlook outlines, Indian silver demand in particular quietly increased throughout 2013, leaving market participants wondering if the country would import more than the record 5,048 metric tons of silver it brought in back in 2008.
If demand from those locations continues at the same rate, silver prices could see a boost.
As last year proved, beginning-of-year silver outlooks can easily go astray — so while a strong year may indeed be in store for the white metal, the opposite could also turn out to be true.
However, according to a Globe and Mail article published earlier this month, silver is likely to perform well at least until the end of February. That’s because for the last two decades, “the metal has gained an average of 9.05 per cent” from December 23 to February 28. If the same holds true this year, now could be the time to bet on silver.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.