EDITOR'S NOTE: Silver prices have been hit hard over the last year, falling from a high of $30.50 to the current price of $18.50 per ounce. If you’re holding on to silver or looking to buy, you’re probably wondering if there might be more upside than downside in this topsy-turvy market where high inflation seems to be met (ironically) with a huge move away from safe-haven assets like gold and silver. Timing the market is a tricky endeavor, but interpreting market sentiment has proven to be an easier task due to its obviousness in market behavior. Keith Neumeyer of First Majestic Silver sees similarities between the current price plunge and the 2008 declines leading to silver’s stratospheric leap. He sees silver reaching $130 an ounce. Peter Krauth, the editor of Silver Stock Investor, has a more moderate forecast, yet his outlook also points upward from the current price. In an interview with INN, Krauth said “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 Philosopher’s Stone in all investment decisions is to seek opportunities in which the potential positive payoff is significantly higher than any downside risk. With silver holding at the $18 an ounce range as economic uncertainty continues to rise and spread on a global scale, how much more downside can silver really have?
What’s in store for silver in the future? Keith Neumeyer of First Majestic Silver has said he sees the white metal reaching US$130 per ounce.
The silver price made waves in 2020 when it rose above US$20 per ounce for the first time in four years. Despite volatility, theprecious metal has managed to stay securely above that level in 2022.
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.
Neumeyer has voiced this opinion often, most recently in a March 2022 interview with Kitco. He put up a US$130 price target in a November 2017 interview with Palisade Radio, and has reiterated his triple-digit silver price forecast in multiple interviews with Kitco: one in March 2018, one at the top of 2020 and another in May 2021.
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 and whether a triple-digit silver price is really in the cards, it’s important to take a look at the factors that affect the metal’s movements, as well as where prices have been in the past and where other industry insiders think silver could be headed. First, let’s dive a little deeper into Neumeyer’s prediction that the white metal could break the US$100 level.
Silver in the future: Why US$100?
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 the seemingly distant US$100 mark, its price would have to increase from its current value by more than 350 percent.
Neumeyer expects a triple-digit silver price in part because he believes the current market cycle compares to the year 2000, when investors were sailing high on the dot-com bubble and the mining sector was down. He thinks 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, noting that there are multiple factors behind his reasoning. “But I’m cautiously enthused because, you know, I thought it would have happened sooner than it currently is happening.”
In a May 2021 interview, when presented with supply-side data from the Silver Institute indicating the biggest surplus in silver market history, Neumeyer was blunt in his skepticism.
“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 leaves the market in a deficit, and also questioned the methodology behind the institute’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 is of the opinion that the white metal will eventually become uncoupled from its sister metal 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.
According to Neumeyer in a 2018 interview, “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: Factors affecting price movement
In order to glean a better understanding of the precious metal’s chances of trading around the US$100 range, it’s important to examine the elements that could push it to that level or pull it further away.
The strength of the US dollar, US Federal Reserve interest rate changes and the unwinding of quantitative easing by central banks are all factors that will continue to affect the precious metal, as well as geopolitical issues and supply and demand dynamics. Although Neumeyer believes that the ties that bind silver to gold need 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. 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. More recently, the huge economic impact of the COVID-19 pandemic and Russia's war with Ukraine have been major sources of concern for precious metals investors.
The Russia/Ukraine war is expected to weigh heavily on commodities markets, including precious metals, even after the conflict ends, with many expecting sanctions to remain. Speaking to the Investing News Network (INN) in March 2022, Lobo Tiggre, founder and editor of IndependentSpeculator.com, said he believes these sanctions will lead to a "new Iron Curtain," which will have lasting economic consequences on a global scale.
"It's not a small thing, and it's not going away. I mean, except for an unlikely scenario, it seems to me that this is a paradigm shift; it's a one-way transition," he said. "And we will be dealing with the costs for many years to come."
It’s also key for market participants to watch what central banks do, as this can have a large impact on silver. Precious metals investors have always closely followed the US Federal Reserve’s interest rate plans.
In recent years, the Fed has cut rates down to zero, a move that positively affected prices for both metals. Rate cuts are generally good 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.
However, rising inflation has led the Fed and other central banks to flip their strategies from rate cuts to rate increases, which has in turn had a negative impact on gold and silver prices.
Peter Krauth, editor of Silver Stock Investor, told INN in a May 2022 interview, "We're likely at the end of a 40 year bull market in both stocks and bonds, and with rising inflation (and) huge debts that are continuing to grow, I think people really need to look for alternatives to stocks and bonds."
Silver’s close ties to gold’s safe-haven status should be beneficial in the long term, and there is also a strong case to made for the metal's industrial growth potential. According to CIBC market analysts, who see silver averaging US$32 in 2022, higher industrial demand from emerging sectors due to factors like the transition to renewable energy will be highly supportive for the metal over the next few years.
“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,” they said.
Silver in the future: Historical prices
While not all silver market watchers anticipate a triple-digit silver price in the near future, there is support for Neumeyer’s belief that the metal is undervalued and that “ideal conditions are present for silver prices to rise.”
Many are on board with Neumeyer in the idea that silver's prospects are bright, including Krauth, who believes that "we are very likely going to experience the greatest silver bull market of our generation."
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.
In February 2021, the price of silver reached nearly US$28.50 before pulling back again. The price of silver has yet to trend that high in 2022.
Silver in the future: Other opinions
Many market watchers believe that silver is ripe for a rally, but perhaps just not as high as US$100 or more.
David Morgan of the Morgan Report sees the potential for silver to hit US$50 in the short term. Speaking to INN in February 2022, he pointed out that high levels of stock market volatility will make silver more attractive to investors. "There is going to be huge distortions across all markets — meaning the bond market, the stock market, the metals market, the crypto market," explained Morgan.
He believes silver may break through US$30 to trade in the US$33 range in 2022. He also sees potential for silver to reach US$50 in the near future. "Once silver gets above US$33 and it stays there for three or four days — or better yet, even two or three weeks — there's not much holding it back to hit US$50 again," he said.
Matt Watson, founder of Precious Metals Commodity Management, thinks that over the next decade silver will benefit greatly from increased industrial demand, particularly from the electric vehicle, solar photovoltaic and electronics industries. This increasing demand is happening in concert with decreasing mine supply, which has the potential to push the silver price to US$50 — just not in the short term.
"Now, as (silver) starts pushing, like I said, into the mid-2030s and becomes more of an industrial-based metal, then I think you see the likelihood of that 8 percent growing to a 10 to 12 percent type of CAGR," Watson told INN.
For his part, Tiggre thinks the present market circumstances are ripe for silver to outperform gold and perhaps reach triple-digit levels. "I know that sounds wild and crazy, but you know what? Even if it just goes back to a new all-time nominal high, we're talking US$50+ silver, which completely rewrites the book for all the exploration and production stories. It's a big deal, and it should be reflected in share prices," he told INN.
This is an updated version of an article originally published by the Investing News Network in 2016.
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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.
Originally published on Investing News.