The “year that was” brought mostly disappointment to precious metals bulls. Silver prices fell for the third straight year…[but] when we finally see a major rotation out of stocks and into precious metals, silver has the potential to lead on the way up just as it has led on the way down. [Let me explain why.]
By Stefan Gleason (moneymetals.com)
PM Fundamentals Getting Better
While silver prices fell in 2014 for the 3rd straight year it is rare for any metal to fall in price 4 years in a row [and while] gold has flat-lined around the $1,200 per troy ounce level...the down-trending prices we’ve experienced improve the fundamentals for physical precious metals in 4 important ways:
- by discouraging new supply from coming on line. In 2014, many miners were forced to suspend operations as gold and silver spot prices fell below production costs,
- by encouraging more jewelry demand for gold,
- by creating more industrial consumption of silver (the Silver Institute report released on Dec. 10th states that industrial demand for silver is…forecast to grow 27% through 2018, meaning an additional 142 million ounces of silver will need to be supplied), and
- by increasing demand for physical bullion among investors…(silver coin demand hit new records in 2014 with the U.S. Mint selling more than 44 million Silver Eagles, up from 42.7 million the prior year…[which] should translate into a resumption of the bull market in silver prices in the months ahead)…
- and the platinum and palladium markets are both projected by metals refinery Johnson Matthey to run a supply deficit in 2015 (palladium’s deficit is expected to grow to more than 1.6 million ounces which would be the biggest shortfall ever recorded).
PMs Have Compelling Value vs Alternatives
The value now available in precious metals is especially compelling considering the major alternatives:
- savings accounts still yield nothing,
- bond yields are still near historic lows, and
- the U.S. stock market is now significantly overvalued by many measures, including
- its trailing price/earnings ratio of 26 and
- its 20% premium over total gross domestic product.
Dow:Gold Ratio Could Revert Back In Gold’s Favor
The ratio of the Dow Jones Industrials to the price of gold now stands at more than 14 to 1. For perspective, the ratio got as low as in 6:1 in 2011 and 1:1 at the 1980 top in gold. The ratio has plenty of room to revert back in gold’s favor as gold looks cheap versus the Dow.
Gold:Silver Ratio Could Narrow
The gold:silver ratio moved in favor of gold to a multi-year high of 74:1 in 2014, as gold’s more volatile cousin got hammered yet silver mining supply exists at a ratio of about 12:1, suggesting silver has plenty of fundamental room to narrow the ratio and outperform gold and perhaps vastly outperform stocks.
When we finally see a major rotation out of stocks and into precious metals, silver has the potential to lead on the way up just as it has led on the way down.
[The above article is presented by Lorimer Wilson, editor of www.munKNEE.com and the FREE Market Intelligence Report newsletter (sample here) and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. This paragraph must be included in any article re-posting to avoid copyright infringement.]
*Original Source: https://www.moneymetals.com/news/2014/12/31/forecast-2015-the-year-ahead-in-the-money-metals-000651 (© 2014 Money Metals Exchange)
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