On the heels of quantitative easing, a devaluation of the dollar, and inflation, safe haven investors were expecting silver prices to trade in the $30.00–$50.00-an-ounce range. Sadly for these investors, that did not come to fruition.
After starting 2013 at $30.00 an ounce, the white metal finished the year around $19.50 an ounce—an annual loss of 36%. The dismal year is even more cringe-worthy when you consider silver recorded an average price of $31.15 in 2012—the second-highest on record.
Silver prices tanked in mid-April on the back of gold’s violent descent. Gold prices plummeted (in part) on the rumored sale of gold reserves in Cyprus. This decline occurred despite the demand for physical gold remaining strong in India and China. This point is important because, together, these two countries account for more than half of the annual demand for gold.
Still, silver prices fell in step with gold and then continued to slip lower over the ensuing months after the Federal Reserve hinted it might begin to taper its $85.0-billion-per-month easy money policy.
While analysts are divided as to how silver will perform in 2014 (some of them are calling for a range of $19.00–$26.00 an ounce and others are suggesting $30.00–$34.00 an ounce), the year will present investors with some solid opportunities.
For starters, the recently announced pullback in quantitative easing from $85.0 billion a month to $75.0 billion per month and a (so-called) “improving” economy has tempted some investors to move away from safe haven investments (like the precious metals) and into other equities instead, looking for better returns.
This is a double-edged sword that could benefit silver prices. While the quantitative easing pullback has begun, the program is firmly entrenched and is going to be in place for a long, long time. Currently trading near $20.00 an ounce, the precious metal has solid support near $18.00 an ounce, and when it dips to $19.00, buyers will flock in. At the current levels, there will be continued interest for silver throughout 2014.
Should the U.S. economy actually get on solid footing in 2014, the industrial demand for silver could lift the precious metal’s prices enough to attract investors who have turned their backs on the precious metal as a safe haven. (Roughly 40% of the precious metal is used industrially in solar batteries, cell phones, circuit boards, plasma televisions, and even the oil industry.)
On top of that, given the stunning gains seen on the stock market in 2013, many are calling for a correction of some kind in 2014. If that happens, investors are likely to look for assets that are undervalued—enter silver (and gold).
Finally, for those who are interested in seasonal opportunities, the window on the white metal is wide open. Historically, the strongest period for silver prices has been from December 23 to February 28. Over the last two decades, the precious metal has gained an average of nine percent with positive results during this period in 14 of the last 20 years. The S&P 500 has averaged gains of 8.65%. Overall, silver has outpaced equity markets in 16 of the last 20 December–February periods. (Source: Vialoux, D. and Vialoux, J., “Silver is in season. Boost your exposure with these ETFs,” The Globe and Mail, January 6, 2013.)
Silver may not win the precious metals race in 2014, but there are more than enough scenarios in which the white metal could provide investors with strong short-term returns.
This article is brought to you courtesy of John Whitefoot from the Daily Gains Letter.