Is The Price Of Silver Doomed To Continue Falling?

Wednesday, October 12, 2016

silver bars

Early this year we started to see a rally in precious metals, sending silver climbing dramatically in an upward trend that seemed like it would last forever. While it didn't quite last that long, it did last until July. However, since then, the price of the white metal has experienced tremendous volatility…causing material declines. As a result, investors are asking what happened - and whether or not the price of the commodity is doomed to continue falling. Today, I'll do my best to answer both questions.

What The Heck Happened To Silver?

As mentioned above, the beginning of the year proved to be a great time for silver. In fact, upward movement lasted for several months. However, since July, the precious metal has been in trouble. So, what happened? Well, to understand why it's falling, you need to understand why it went upward in price.

The reason for the gains early in the year had to do with economic concerns on a global scale. We all remember the bottom falling out of the global market in early January as a Chinese stock market crash fueled concerns. Of course, when these types of things happen, safe haven investors start to look for ways to maintain the intrinsic value of their assets...ultimately looking to gold and silver. Throughout the first half of the year, we saw more of the same. Essentially economic conditions around the world and global market conditions were so disconcerting that investors felt the only way to go was to invest in precious metals; thus sending silver skyrocketing.

In July things started to change dramatically. Economic conditions in the United States, China, Japan, Europe and the UK were all improving. Soon, we saw stiff stimulus efforts around the world that would further generate economic growth. As a result, the global market started to see incredible improvements, causing investors to have an increased appetite for risk. Consequently, investors started selling their precious metals…and investing the proceeds into stocks for the gains it has to offer. Consequently, this caused the price of silver to take a dive.

Is The Price Of Silver Doomed To Declines For The Foreseeable Future?

Currently, the price movements in silver is overtly disheartening. Moreover, you may think the white metal is doomed to further declines ahead. However, I don't believe that this is the case at all. In fact, I've predicted for some time now that in the first half of 2017, we're likely to see further economic hardships, leading to massive declines in the stock market - and subsequently gains in the value of safe haven investments like silver.

Now, those predictions seem to be gaining validity as we near what I like to call “the crisis times”. There are two big stories that are validating my predictions that we'll see this movement in the first half of next year.

  • Brexit – After the Brexit vote was made, the market saw a dip…then resumed to normal business. This had a lot to do with the fact that investors weren't too concerned about the implications of the negotiations to follow. However, recently, European leaders have been calling on others to make the UK pay for their decision. As a result, negotiations are likely to be met with hard lined approaches that could lead to a complete cut off in trade between the UK and the EU. If this were to happen, the global economic implications would be massive.

  • Oil – One of the factors that is helping economic growth at the moment is gains in the value of oil. A recent OPEC agreement fueled hopes that the world would back a supply freeze, leading to a balance in production. However, those hopes seem to be falling apart as Rosenft of Russia, the world's most productive oil nation, said that they would not take part in the freeze. If this deal doesn't come to fruition as planned, we could see more massive declines in the price of crude oil. And since crude oil is so important to economic conditions around the world, this could be the start of the crisis to come.

Between these two factors, we have enough to send global stock markets into massive corrections. Furthermore, I'm also expecting that the Fed will increase the Fed Fund’s Rate in December, leading to further global economic pressures. Also, economic trends in China late this year and early next year could take a seasonal dive, generating even more fear. Rest assure if this all comes together like similar factors converged early this year, silver could skyrocket. 

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Joshua Rodriguez

Joshua Rodriguez is an avid financial professional. He is the owner and founder of CNA Finance, a partner at Modest Money, and a writer for US News & World Report, Investing.com, and more! Joshua takes a strong fundamental approach to market analysis and enjoys offering his take on what we can expect moving forward. You can reach Joshua at cnafinancehelp@gmail.com.