Silver Is Headed Up...Here's Why

Monday, March 28, 2016

silver coinsSilver, like gold had a great start to the year. However, I don't think that the rally is over. The truth is that there is a ton of data that supports further growth in the price of the precious metal. Today, we'll talk about why I believe silver is likely to climb through 2016 and possibly beyond.

Silver Has Grown, But It Hasn't Kept Up With Gold

Both gold and silver have seen a strong start to the year. However, silver has not seen the growth that gold has, and that's a key indication that silver is going to climb further. In fact, one of the key fundamental indicators to watch when it comes to the price of silver is the gold-to-silver ratio. This ratio simply measures the amount of silver that you would need in order to buy one ounce of gold. Because gold and silver are both precious metals, they should both move in tandem with each other for the most part. However, we've seen the gold-to-silver ratio widen as of late. At the moment, the ratio has widened to the point where about 80 ounces of silver are required to purchase one ounce of gold. This is incredibly high, and will likely fall, meaning that the price of silver is likely to climb.

Silver Production Is Declining

As with just about any other commodity, the price of silver is largely dependent on the law of supply and demand. This law dictates that when supplies are high and demand is low, the value of the commodity must decline. Adversely, when supplies are low and demand is high, the value of the commodity must climb. Well, we happen to be on the latter portion of the equation at the moment. We'll get into demand a bit later. However, the supply side of the equation is showing some interesting signs.

Over the past year or so, we've seen incredible declines in the values of commodities. In this particular case, the important commodities to focus on are zinc and lead. That's because silver is largely a bi-product of zinc and lead mining. At the moment, zinc and lead mines are closing as a result of the incredibly low prices of the commodities at current levels. Because these mines are closing, they are not producing their primary bi-product... silver! This is leading to declines in silver production.

Demand Is Climbing

On top of the fact that the production of silver is starting to decline, demand for the precious metal is starting to climb. With the current geopolitical stage, deteriorating economic climate and poor market conditions in mind, consumers and investors alike are looking toward precious metals as a way to keep their money safe. As a result, the US Mint is breaking records with regard to silver sales. Moreover, I don't see this coming to an end any time soon.

What We Can Expect To See Moving Forward

In the foreseeable future, I have incredibly high expectations with regard to what I expect from the price of silver. The bottom line is that if the law of supply and demand really dictates price movements in the precious metal, it has nowhere to go but up. As economic, geopolitical, and market conditions continue to be causes for concern, demand for the commodity will continue to climb. As prices of other commodities continue to decline, more mines will close -- and supplies will continue to shrink, further fueling growth in the price of silver

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.