USD Silver Price, page-214

Silver in the future: Why US$130?

There’s a significant length for the silver price to go before it reaches the success Neumeyer has boldly predicted. In fact, in order for the precious metal to jump to US$130, its price would have to increase by close to eight times its current value.

Neumeyer sees US$130 silver in the cards in part because he believes the current market compares to the year 2000, when investors were sailing high on the dot-com bubble and the mining sector was down. The First Majestic Silver CEO thinks it’s only a matter of time before the market corrects, like it did in 2001 and 2002, and mining sees a big rebound in pricing. It was during this time that Neumeyer himself invested heavily in mining stocks and came out on top.

“I’ve been calling for triple digit silver for a few years now and I’m more enthused now,” said Neumeyer at an event in January of this year. “But I’m cautiously enthused because, you know, I thought it would have happened sooner than it currently is happening.”

The silver CEO’s enthusiasm is based on the fact that governments in the western world continue to print money and take on massive debt loads. “I think the central banks around the world have put themselves into a corner. I think interest rates are either going to stay stable or go lower, and the governments are just going to keep printing money and deficit spending.” This scenario is “very supportive for gold, and of course that will drag silver along,” he said.

Neumeyer emphasized that he trusts in silver’s supply and demand fundamentals to move the markets. “The headlines stuff that we read every day, whether it’s Trump or China … those will move markets for sure, but it doesn’t move supply and demand.” He pointed out that today’s booming solar panel and electric car markets are two huge drivers of silver consumption, “so the supply/demand fundamentals for the metal today are even more dramatic” than in years past.

More controversially, Neumeyer believes the white metal will become uncoupled from gold, and should be seen as a strategic metal due to its necessity in many everyday appliances, from computers to electronics to solar panels. He has also stated that silver production has gone down in recent years, meaning that contrary to popular belief, the metal is actually a rare commodity.

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According to Neumeyer, “We’re consuming, as a human race, over 1 billion ounces of silver annually, and miners are only producing about 800 million ounces a year, and that’s been dropping for three consecutive years.” He has also pointed to declining grades, making the case for a deficit.

Silver in the future: What factors affect its movements

In order to glean a better understanding of the precious metal’s chances of trading around the US$130 range, it’s important to examine the factors that can push it to that level or pull it further away.

The strength of the US dollar, US Federal Reserve interest rate changes and quantitative easing by central banks are all factors that will continue to affect the precious metal, as well as geopolitical issues and elements of supply and demand. Although Neumeyer believes that the tie that binds silver to gold needs to be broken, the reality is that most of the same factors that shape the price of gold also move silver.

For that reason, it’s helpful to look at gold price drivers when trying to understand silver’s price action in the last year. Silver is, of course, the more volatile of the two precious metals, but nevertheless it often trades in relative tandem with gold.

For gold, and by extension silver, a key price driver lately hasn’t been so much supply and demand, but uncertainty. The past 12 months have been filled with major geopolitical events such as the tensions between the US and other countries such as North Korea, China and Iran. Those tensions and other developments, such as the huge economic impact of the coronavirus pandemic, have been major sources of concern for investors in the precious metals market.

Precious metals investors have also been closely following the Fed’s interest rate plans. Rate cuts are generally positive for physical silver and gold bullion prices, because when rates are lower it is more profitable to invest in precious metals rather than in products that can accrue interest.

The Fed recently dropped interest rates to zero, a move that has positively affected both metals. Further rate cuts remain front and center in many investors’ minds — and for good reason. The Fed continues to have a dovish tone for the remainder of the year. Market participants should also pay attention to what central banks do going forward, as it could have a large impact on the white metal.

With the US currency being less strong than in previous years, both gold and silver have begun steady inclines, with the white metal gaining — and maintaining — a trading price that is over US$17.