– Bloomberg silver price survey – Large majority bullish on silver – Silver median “12 month-forecast” of $20 – Precious metal analysts see silver “24 percent rally from current levels” – Investors are pouring money into silver ETFs – Speculative funds bearish even as ETF assets rise to record – Spec funds being bearish is bullish as frequently signals bottom – Important to focus not just on silver price but on silver value – “Important to note that all portfolios under all conditions actually perform better with exposure to gold and silver” – David Morgan (see video)
In a Bloomberg survey of 13 traders and analysts, the majority were bullish. 11 people said silver prices would rise and two predicted declines.
Among the seven respondents that provided estimates, the median 12-month forecast was $20 — indicating a 24 percent rally from current levels.
Assets in exchange-trade funds backed by silver have risen 6.6 percent since April 24 to 21,211 tons, according to data compiled by Bloomberg.
In the same time, hedge funds turned negative as prices tumbled. In the week ended July 11, hedge funds were net short by 5,402 contracts, according to U.S. Commodity Futures Trading Commission data. Short positions have tripled since the week of April 25 to 60,775 contracts.
We continue to see silver as undervalued vis a vis gold but more especially vis a vis stocks, bonds and many property markets. Rather than selling the financial insurance that is gold, we would advise reducing allocations to stocks, bonds and property and allocating to silver.
If one is very overweight gold in a portfolio and has no allocation to silver than there is of course a case for selling some gold and reweighting a portfolio in order to diversify into silver.
Gold Silver Ratio – 10 Years
With the gold to silver ratio at 76 ($1235/$16.20/oz), the silver price is attractive at these levels and has the potential to be the surprise out performer in H2, 2017.
Silver’s industrial uses and coin and bar demand should see the gold/silver ratio gradually revert to the mean average in the last 100 hundred years which is close to 35:1. This was seen again in April, 2011 when the gold silver ratio fell to 32.4 with silver at $48/oz and gold at over $1,500/oz.
If the small silver market sees high net worth or institutional funds enter it, then the ratio could return closer to the long term, historical average of 15:1 as it did in 1980. We this as likely in the coming months given how cheap silver has become and the degree of risk in stock, bond and property markets today.
Silver prices back at $20 per ounce seems quite possible in the coming months and we believe we will see a significant rally from today’s depressed prices. Longer term we see silver returning to the record nominal high of just below $50 per ounce – which was seen in 1980 and came very close to again in April 2011.
Silver remains a valuable diversification in a portfolio in that it tends to rise sharply when traditional assets like stocks and bonds are falling.
History shows this, as did the recent global financial crisis when silver surged from $12/oz (not far above the depressed levels of today at $16) in 2007 to nearly $50 at the height of the crisis in 2011.
Recent research has confirmed this that both gold and silver are safe haven assets. They tend to rise sharply when there is uncertainty and in economic crisis. The research shows a 10% allocation to gold is optimal and 1% to 5% allocation to silver is optimal in normal market conditions but a 10% allocation to silver is optimal in a financial crisis – See Lessons from gold and silver: Reviewing the research by Dr Brian Lucey.
In a recent note to subscribers David Morgan, the Silver Guru, underlined the importance of not viewing silver simply as a speculative asset to make a return on and to focus on silver’s diversification benefit:
“It is important to note that all portfolios under all conditions actually perform better with exposure to gold and silver” – David Morgan
We recently had the pleasure of David’s company in GoldCore’s head office in Dublin, Ireland.
In the short video above, David speaks briefly about the importance of owning silver bullion coins and bars as financial insurance in an uncertain world. He speaks about GoldCore Secure Storage and how he recommends GoldCore’s ultra secure allocated and segregated gold, silver, platinum and palladium bullion storage (Zurich, London, Singapore and Hong Kong) to his retail and high net worth clients.
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