To say the least, 2015 has been a rough year for the precious metals. Thanks to the vicious downturn for commodities in general throughout the year, the prospects for gold, silver, and especially platinum and palladium have been beaten down to multi-year lows. The combination of dwindling demand for the metals’ industrial uses and an ostensibly improving U.S. economy have spelled steep annual losses for silver prices.
On Wednesday morning, spot silver fell back below the $14/oz level yet again, falling nearly 1% to $13.90/oz.
Looking ahead to the fast-approaching New Year, we’ll piece together some of the factors that will impact silver as we move into 2016.
Spot gold was also lower on Wednesday, falling about 0.75% to just above $1,060/oz.
One general theme that is unlikely to change—next year or ever—is the strong correlation between gold and silver prices. In general, however, silver usually trails behind the gold price. Because it is not quite as commonly chosen as a safe haven compared to gold, silver typically doesn’t rise as much as gold when investors flee for safety. Meera Shawn, a precious metals and mining analyst for Market Realist, summed it up this way: “Silver is less sought after for its appeal compared to gold, and it is predominantly used as an industrial metal.”
In other words, silver almost invariably trends the same direction as gold, but follows behind. On the other end, when a falling commodities sector drags the precious metals lower, silver usually falls farther than gold due to its closer ties to industrial demand. (In both cases, falling or rising “more” or “less” is used in a proportional or relative sense, considering the vast difference between the two metals’ prices.) This also means that silver exhibits greater volatility than gold.
This dynamic certainly held in place in 2015. Both gold and silver have lost more than 9% on the year—and with just one trading day left in the calendar year, this is unlikely to change much.
China and India
One of the key themes of silver’s decline throughout the year was the progressive slowdown of the Chinese economy. (Silver did get a temporary boost when the People’s Bank of China devalued the yuan by 2% in mid-August.) While this had broad effects on different markets, it especially hurt silver prices due to China’s heavy reliance upon industrial metals.
Bearish Outlook Remains
Looking ahead, even near-term rebounds for silver would seem merely to be technical corrections rather than a change in larger trends. According to a reading of the technical charts, silver prices would likely have to sustain a break above $15.50/oz in order to convincingly shift from its years-long bearish bias to a bullish outlook.
While there will always be volatility along the way, don’t expect silver to break out early in 2016, barring a significant change in the dollar or the global economy.
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.