Does Silver Have Room to Run Higher?

Just like gold, silver prices have witnessed a tremendous rally in recent months as the potential of a recession, slowing economy, and the U.S.-China trade war have sent investors in the direction of precious metals. The current spot price of silver is at just under $18 an ounce, pulling back from the highs of nearly $19.60 an ounce a couple of weeks ago.

When the year began, silver was trading at around $15.50 an ounce, so the price of the precious metal has increased by a fair margin so far. But does silver have room to rise further? Let’s find out.

Price Estimates Suggest That Silver Has Room to Run

The silver price rally has eased of late after it emerged that the Federal Reserve’s decision to slash the federal funds rate last month was not the beginning of an aggressive rate cut cycle. Rather, the Fed said that it is recalibrating its stance and that’s why it adjusted the rate last month.

This means that there might not be more interest rate cuts in the offing. As a result, the price of precious metals such as gold and silver are bound to move lower because treasury yields will provide a higher return. Because silver tends to behave like a safe-haven asset at times despite its other properties, its price also fluctuates.

But the good news for silver is that the European Central Bank’s aggressive monetary easing policy will be a tailwind for the precious metal. As reported by Kitco:

The ECB lowered interest rates by 0.1%, to minus 0.5%, and also announced a new ‘quantitative easing’ bond-buying program, which is the largest in over three years. The Federal Reserve meets next week and is expected to cut U.S. interest rates by 0.25%.

Thanks to this tailwind, the price of December Comex silver prices increased by $0.38 an ounce to $18.55 an ounce. This indicates that the future for silver prices is looking bright, with one analyst believing that the price of the metal could hit $25 an ounce this Thanksgiving.

But this is not the only reason why investors should be betting on silver as its industrial uses will be another tailwind.

The Demand-supply Balance Will Boost Silver Prices

Silver demand has been on the rise thanks to the metal’s industrial uses. In fact, silver demand increased 4% last year, which was a three-year high.

What’s more, physical silver demand increased to more than 1 billion ounces in 2018, while the supply of the metal dropped 2% to 855.7 million ounces. So there’s a clear gap between silver demand and supply, and this would have a positive impact on prices in the long run as the deficit is expected to increase.

So don’t be surprised to see an increase in silver prices going forward because not only is the metal favourable from a safe-haven standpoint, but the demand-supply dynamics also point toward an increase in prices.

Harsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. His financial writing has been published across platforms such as The Motley Fool, TheStreet, and Seeking Alpha. Harsh's philosophy is to find great businesses for the long run based on company fundamentals and industry prospects. Address: 682 Indian Road, Toronto, Ontario, M6P 2C9. Phone: 416-721-8257.


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