Silver bullion prices have been falling quickly over the last 2 or 3 weeks, pulling back from the $16-per-ounce range by settling below $14.50/oz. As the white metal continues to approach fresh multi-year lows, there are several reasons to believe that the short-term outlook for silver may be improving as we round out the year.
On Monday, spot silver opened virtually flat in the $14.40/oz range, playing ping-pong back and forth between a few cents above and below unchanged. Along with gold, the metal was undoubtedly seeing some buying pressure as investors search for safe havens following the disturbing terror attacks on Paris this past Friday.
Short-Term Outlook for Silver: Safe Haven
The tragic and senseless attacks in Paris that left more than 100 people dead have heightened security efforts and raised anxieties about the relative safety and stability of Western democracies against the atrocities of Islamist extremists. Beyond France, many in the West are stepping up their vigilance against potential terror threats.
While this type of response is a step in the right direction for defeating ISIL and terrorism generally, it has the effect of somewhat depressing economic activity. Frightened citizens are less likely to travel abroad, make big purchases, or spend money on social gatherings. Business owners are more likely to keep their shops closed. Moreover, the greater focus on security and safety also drags on productivity by pulling attention away from people’s everyday work and regular routine. While this impact appears to be shallow so far, it nonetheless disrupts productive activity.
With this in mind, the precious metals will see a bit of safe haven demand in the short-run. In general, the outlook for silver firms up when uncertainty or poor expectations dominate the markets.
The fallout from the Paris terror attacks also exacerbates the Syrian refugee situation, making it even less likely that European nations will cooperate with the efforts to accommodate hundreds of thousands of migrants. With this situation looking increasingly intractable, silver could be the beneficiary.
The technical charts for silver were already pointing this way. The metal has traded up-and-down within less than a $2 range since June, hardly straying from $14 to $16 per ounce. Even as silver has fallen over the last month, it held around $14.50/oz even as U.S. stock indices tumbled nearly 4% during last week alone. According to DailyFX, so long as the metal doesn’t break below $13.96 per ounce, the outlook for silver should remain somewhat optimistic as a bounce is likely in store, assuming that current trends hold to form.
Medium-Term Outlook for Silver: Muddled
At the same time, whether or not silver can sustain new highs over the medium-term is unclear. Much of the evidence supporting a bounce higher for the metal is based primarily off of its currently low price position. For instance, the major silver ETF, the iShares Silver Trust (SLV), has seen considerable outflows. The fund has lost 10% of its value in the past month, but it seems the tide as turned toward SLV being oversold.
Meantime, analysts at both Barclays and HSBC lowered their projections for silver over the next year or so. The weaker outlook for silver from these banks was also reflected in lowered expectations for gold prices.
As far as mining goes, the sector is undoubtedly still struggling amid low metal prices. First Majestic Silver (NYSE:AG; TSX:FR; SWX:FMS), however, actually beat expectations for the third quarter. The company, which focuses mainly on operations in Mexico, is looking to recover from a precipitous drop of over 40% from the beginning of the year. Shares of First Majestic rallied just shy of 5% on Friday.
In international news affecting silver, India has decided to cut certain tariffs on gold and silver, slashing the import duty on silver from $517 per kilo to $470/kg. This is seen as a loosening of restrictions while metal prices so low. Even though India’s gold imports have been subdued, the country has seen silver purchases rise as an alternative, recently vaulting past the U.S. as the world’s top consumer of silver.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.