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Thursday, September 21, 2023

Could the Silver Price Really Hit US$130 per Ounce?

The silver price made significant gains in the second half of 2020, rising above US$20 per ounce for the first time since 2016. The spot price for the precious metal has managed to stay securely above that level well into 2021.

Nonetheless, well-known figure Keith Neumeyer, CEO of First Majestic Silver (TSX:FR,NYSE:AG), has frequently said he believes the white metal could climb even higher, reaching into the triple digits.

“Silver is the only commodity that is not reaching its (historic) highs, and it has reached (those highs) on two separate occasions, back in 1980 and 2011. I think we’re going to see that high breached in the cycle, and when it does, it’s going to wake up the market. Once it breaks through the US$50 level, I think that it’s going to get up to the US$100 level pretty quickly,” said Neumeyer in a May 2021 interview with Kitco.

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Neumeyer has voiced this opinion often, putting up a US$130 price target in a November 2017 interview with Palisade Radio; he did so again in March 2018 with Kitco and in another Kitco interview at the top of 2020. At times, he’s been even more bold, suggesting the white metal could reach US$1,000.

In order to better understand where Neumeyer’s opinion comes from, it’s important to take a look at the factors that affect the metal’s movements, where prices have been in the past and where other industry insiders believe silver could be headed. First, let’s dive a little deeper into Neumeyer’s prediction that the white metal could break the seemingly distant US$130 level.

Silver in the future: Why US$130?

There’s a significant distance for the silver price to go before it reaches the success Neumeyer has boldly predicted. In fact, in order for the precious metal to jump to US$130, its price would have to increase from its current value by 500 percent.

Neumeyer sees triple digit silver prices in the cards in part because he believes the current market compares to the year 2000, when investors were sailing high on the dot-com bubble and the mining sector was down. He believes it’s only a matter of time before the market corrects, like it did in 2001 and 2002, and mining sees a big rebound in pricing. It was during this time that Neumeyer himself invested heavily in mining stocks and came out on top.

“I’ve been calling for triple digit silver for a few years now and I’m more enthused now,” said Neumeyer at an event in January 2020. “But I’m cautiously enthused because, you know, I thought it would have happened sooner than it currently is happening.”

The silver CEO’s enthusiasm is based on the fact that governments in the western world continue to print money and take on massive debt loads. “I think the central banks around the world have put themselves into a corner. I think interest rates are either going to stay stable or go lower, and the governments are just going to keep printing money and deficit spending,” he said. This scenario is “very supportive for gold, and of course that will drag silver along.”

In a more recent interview, when presented with supply-side data from the Silver Institute indicating the biggest surplus in silver market history, Neumeyer was blunt in his scepticism. “I think these numbers are made up,” he said. “I wouldn’t trust them at all.” He pointed out that subtracting net investments in silver exchange-traded products (ETPs) leaves the market in a deficit, and also questioned the methodology behind the institutes’s recycling data given that most recycled silver metal comes from privately owned smelters and refineries that typically don’t make those figures public.

More controversially, Neumeyer believes the white metal will become uncoupled from gold, and should be seen as a strategic metal due to its necessity in many everyday appliances, from computers to electronics to solar panels. He has also stated that silver production has gone down in recent years, meaning that contrary to popular belief, the metal is actually a rare commodity.

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According to Neumeyer, “We’re consuming, as a human race, over 1 billion ounces of silver annually, and miners are only producing about 800 million ounces a year, and that’s been dropping for three consecutive years.” He has also pointed to declining grades, making the case for a supply deficit.

Silver in the future: What factors affect its movements

In order to glean a better understanding of the precious metal’s chances of trading around the US$130 range, it’s important to examine the factors that can push it to that level or pull it further away.

The strength of the US dollar, US Federal Reserve interest rate changes and quantitative easing by central banks are all factors that will continue to affect the precious metal, as well as geopolitical issues and elements of supply and demand. Although Neumeyer believes that the tie that binds silver to gold needs to be broken, the reality is that most of the same factors that shape the price of gold also move silver.

For that reason, it’s helpful to look at gold price drivers when trying to understand silver’s price action in the last year. Silver is, of course, the more volatile of the two precious metals, but nevertheless it often trades in relative tandem with gold.

For gold, and by extension silver, a key price driver lately hasn’t been so much supply and demand, but uncertainty. The past few years have been filled with major geopolitical events such as tensions between the US and other countries such as North Korea, China and Iran. Those tensions and other developments, such as the huge economic impact of the coronavirus pandemic, have been major sources of concern for investors in the precious metals market.

Precious metals investors have also been closely following the Fed’s interest rate plans. Rate cuts are generally positive for physical silver and gold bullion prices, because when rates are lower it is more profitable to invest in precious metals rather than in products that can accrue interest.

The Fed recently dropped interest rates to zero, a move that has positively affected both metals. Further rate cuts remain front and center in many investors’ minds — and for good reason. The Fed continues to have a dovish tone, with indications that near zero rates will hold through 2023. It’s key for market participants to watch what central banks do, as it could have a large impact on silver.

With the US currency being less strong than in previous years, both gold and silver have begun steady inclines, with the white metal managing to hold above US$24 in 2021.

Silver’s close ties to gold’s safe haven status will be beneficial in the long term, and there is also a strong case to made for silver’s industrial growth potential. According to CIBC market analysts, higher industrial demand from emerging sectors due to factors like the transition to renewable energy will be highly price supportive for the metal over the next few years.

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CIBC see the silver price averaging US$32 in 2022. “Given our expectations for inflation to increase over the coming months and for pressure on the Fed to walk a fine line between hiking rates to manage inflation vs. supporting economic growth, we continue to believe that gold and silver prices will continue to climb over the coming quarters,” the analysts explained.

The 2021 World Silver Survey, published by the Silver Institute and Metals Focus, indicates that in 2020 the silver market experienced increased investment demand. Investment in silver ETPs grew by 298 percent to end the year at 1.067 billion ounces. Physical silver investment was up 8 percent to 200.5 million ounces. “Physical investment demand would have been stronger if not for pandemic-related supply disruptions, which caused sharply higher wholesale and retail premiums,” states the report.

Silver in the future: Historical prices

While the CEO of First Majestic is one of just a few saying that silver is poised to reach a triple digit price, there is support for Neumeyer’s belief that the metal is undervalued and that “ideal conditions are present for silver prices to rise.”

These conditions include low interest rates, overvalued markets and a monetary system overcome with indebtedness. And many are on board with Neumeyer in the idea that mining has entered a bull market.

So if the silver price does rise, how high will it go? Let’s look at silver’s recent history. The highest price for silver was just under US$50 in the 1970s, and it came close to that level again in 2011. The commodity’s price uptick came on the back of very strong silver investment demand.

The price of silver has yet to trend that high, but is moving closer. In February 2021, the price of silver reached nearly US$30 before pulling back again.

Silver in the future: Other opinions

Many market watchers do believe that the price of silver is ripe for a rally, and First Majestic’s Neumeyer is not alone in looking forward to a strong increase.

In March 2021, CPM Group managing partner Jeffrey Christian said his firm “wouldn’t be surprised to see the price go back up and test US$30 or US$32 over the next several months.” Christian believes market fundamentals are supportive for silver to climb back to its record high of nearly US$50. “At some point, we think the price of silver will rise and rise sharp,” he said. “That increase we expect to coincide with the next financial and economic crisis.”

Nick Barisheff, president and CEO of BMG Group, thinks silver could hit US$50, pointing out that people are paying closer to US$50 for an ounce of silver on sites like Amazon (NASDAQ:AMZN) and eBay (NASDAQ:EBAY). “I think the US$50 price is more realistic … it’s not a theoretical ask price — people are buying coins and so on at that price,” said Barisheff in an interview with the Investing News Network. “So as time goes on, it’s a good area to monitor for what the real physical price is.”

Gareth Soloway of InTheMoneyStocks.com is also bullish on silver and believes the white metal could rise as high as US$40 to US$50 in the next two years. “Stocks and commodities and currencies do this type of thing where they have a big move and then they need to digest it — kind of like a runner running a marathon. You can’t run back-to-back marathons, you’ve got to take a break, you’ve got to refuel. Then you can go on your merry way,” Soloway said.

Now it’s your turn. Will the price of silver really reach US$130? What do you think? Does the idea make you more likely to invest in silver or silver mining stocks? Tell us your predictions in the comments.

This is an updated version of an article originally published by the Investing News Network in 2016.

Don’t forget to follow us @INN_Resource for real-time news updates!

Securities Disclosure: I, Melissa Pistilli, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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