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Silver Forecast for the End of the Trading Year


Posted: Thursday, December 3rd, 2020

Estimated Reading Time: 2 minutes

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A silver forecast for the rest of the year is as difficult as one for the year ahead. As 2020 taught us, exogenous shocks can easily change the macro-picture.

At this point, reflation is the dominant theme in financial markets. As such, with more stimulus expected both from the U.S. Congress and the Fed, the U.S. dollar index keeps making new lows. Unsurprisingly, commodities bounced from their lows, too, with gold and silver leading.

Metal Focus’ silver forecast for the year ahead sees three scenarios – baseline, aggressive, and underperforming. All three consider a higher price for silver, with the most optimistic level being $35 by October 2021 and the most pessimistic $27.

Silver Forecast

Bullish Silver Forecast

The price of silver fell aggressively in March 2020, following the financial market’s response to the coronavirus crisis. It failed to act as a hedge, just like gold did.

In other words, the more stocks fell, the price of silver followed. All commodity markets at the time reflected the dollar’s scarcity. Not anymore.

At this point in time, the Fed flooded the markets with USD. Over 20% of all dollars ever created were born after March 2020.

However, while stocks made new all-time highs, the price of gold collapsed. From a new all-time high above $2,000, gold fell $300. Naturally, silver followed.

Yet, it seems to be only a correction. Because the dollar keeps falling against other fiat currencies, and the Fed will keep the printing presses rumbling, it is easy to make a case for a bullish silver forecast.

Besides the week dollar and the reflation theme, some other factors point to a higher silver forecast. First, the low levels of mined silver production in 2020 should have their saying in the year ahead. More precisely, production in China, Peru, or Mexico was severely disrupted by the pandemic.

Second, demand remains strong as bar and coins investments reflect the fears of high inflation. Also, industrial demand for silver improved in the second half of the year, after declining in the first part. On the flip side, jewelry and silverware are exposed to weakness in India.

Third, the gold:silver ratio has fallen below the twelve months average. Even though it remains above the long-term average, room for improvement still exists.

Macroeconomic Developments Key to Future Silver Price

Developments in the macroeconomic space are key to the silver price forecast over the next period. More precisely, the inflation expectations and the future path of the interest rates.

Despite interest rate expectations rising a bit recently, they remain low in absolute terms. The same with inflation expectations – they remain modest, reflecting the difficult task the Fed has to reach its new mandate of average inflation targeting.

To sum up, the silver forecast for the next year depends on the path of the U.S. dollar more than ever. If the slide in the dollar continues, as per the consensus, the price of silver and other commodities denominated in dollars will reflect that decline.

 

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