Is The Silver Price Destined To Sit Around $19?

Wednesday, August 24, 2016

The first half of the year was an incredible time for silver as the precious metal saw massive gains. However, more recently, we've seen declines. Now, the price of the precious metal seems to be sticking around the $19 per ounce mark. However, is the precious metal destined to stick around this level for long? In my opinion, the answer is no! Today, we'll talk about what causes movement in the value of silver, why the precious metal has seen declines recently, and what I'm expecting to see ahead.

What Causes Movements In The Price Of Silver

Silver as with any other commodity is at the mercy of supply and demand. When supplies are high and demand is low, the value of the precious metal trends downward. Adversely, low supply and high demand will lead to gains. However, silver is also a safe haven investment. As a result, the precious metal is highly affected by movements in the market and the condition of the global economy. When economic and market conditions are concerning, investors look to silver as a way to keep the value in their assets. As a result, demand spikes, leading to higher prices. When global economic and market conditions are positive, safe haven demand for silver drops off, leading to declines in the price of the precious metal.

Finally, silver like most commodities is priced using the USD. Therefore, when the USD gains in value, the commodity becomes more expensive around the world, leading to declines in demand and price. Adversely, when the USD declines in value, silver becomes less expensive around the world, leading to gains in demand and growth in the price of the commodity.

Why We've Seen Declines In The Precious Metal Recently

In recent trading sessions, silver has seen some pretty big losses - and for good reason. The reason for this is the recent hawkish opinions by the Federal Reserve. You see, the Federal Reserve has been planning to increase its interest rate for some time now. However, economic conditions have delayed the central bank's ability to do so.

Nonetheless, the Fed seems to be more and more optimistic with regard to the state of the US and global economies. As a result, many believe that a rate hike is coming soon. Since higher rates mean a higher USD value, this is bad news for silver.

Another big piece of the equation here that many seem to be leaving out is sentiment. With strong opinions coming out of the Federal Reserve that global economic concerns are subsiding, investor sentiment is changing. This is leading to lower safe haven demand and further declines in the price of silver.

What I'm Expecting To See Moving Forward

I have a relatively mixed opinion of what we're likely to see. In the short-term, and I mean very short... days or perhaps a week tops...I'm expecting that concerns with regard to interest rates will lead to further declines or stagnant movement. However, overall I have an overwhelmingly bullish opinion of what we can expect to see from the price of silver. First and foremost, I do believe that the Fed will increase its rate at some point this year. However, it will likely be a micro-rate increase...i.e. something very small! As a result, I'm not expecting to see the effect on the currency market that some are expecting to see. Also, global economic conditions remain a major concern. While things may be starting to stabilize slightly, economic conditions around the world are by no means improving. As a result, I'm expecting for safe haven demand to hold strong and continue to grow over the long run, sending the price of silver far higher. 

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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.