UPDATE! Since our original article, the silver price has shot up dramatically. Through July 23, it’s now up 26% year-to-date. And from its March low it has spiked a whopping 85%. The majority of analysts may not change their official forecasts for the year, but this kind of price movement shows just how volatile silver can be. If you’re considering an investment in silver, keep in mind this recent price movement hints at what could be in store for silver’s future price—it hit $50 in 1980 and $49 in 2011. We think this surge in interest could be just the beginning…
What will the silver price do in 2020? And where is it headed over the next 5 years?
I’ve compiled silver price predictions from a number of precious metals analysts and consultancies, which I’ll show below. Then I’ll look at the factors that in my experience are most likely to influence silver both this year and over 5 years. I’ll end with my own predictions based on these factors, which you may find surprising.
This will be fun, so let’s jump in!
The table below shows the silver price prediction from various commodity and bank analysts, along with the CEO of a major silver producer. The first two entries are from an annual survey of industry analysts conducted by the London Bullion Market Association (LBMA).
Not all gave a forecast for both time periods, but I’ve listed what they’ve stated publicly. Here’s what they think is ahead for silver.
As you can see, most analysts think silver will average in the $18 range this year. Those that give a high for the year see it reaching into the low $20s. What’s interesting is that those giving a five-year forecast all see silver rising rather dramatically from current levels.
Why do these investors think the price will rise so much over the next five years? To answer that question let’s look at the…
While there are a number of variables that can impact the silver price, let’s look at the factors unique to the silver market itself to see what is most likely to push the price higher or lower.
Industrial Demand vs. Investor Demand
Roughly half of all silver goes toward a variety of industrial applications. Another third goes to jewelry.
So on the surface it would seem logical that economic health would play a major role in determining the silver price. If the economy is strong, silver demand would be strong; if it’s weak, silver demand, and thus the price, would be weak.
But demand for industry and jewelry don’t fluctuate all that much. Yes, it rises in strong economies and falls in weak ones, but the impact on the silver price is not all that significant.
There is one source of demand, however, that has a very significant influence on the price.
Investment demand. This is the biggest differentiator when it comes to determining where the silver price might be headed.
This chart, going back to 1960, demonstrates the link between investment demand and prices. The red shaded areas show that selling from investors leads to lower or weak prices, while the green shaded areas show that rising demand from investors leads to rising prices.
In other words, as investment demand goes, so goes the silver price.
The chart shows investment demand has been falling since 2015. So does that mean the silver price will be weak this year?
No. Notice that the two biggest spikes in the silver price occurred as investment demand shifted from net selling to net buying.
And look at investment demand from the Perth Mint in Australia last year.
Investment demand for silver bullion rose sharply.
Demand figures in the US have been subdued, but have risen the past two years. Further, the Silver Institute said this about 2020:
I can also tell you that demand for silver bullion spiked at GoldSilver last year, and has continued in early 2020, particularly when Coronavirus scares made headlines.
This increase in demand includes bullion ETFs. This chart shows the total amount of silver bullion held by exchange traded funds.
You can see that demand spiked in 2019, which was the largest net increase since 2010.
And it’s starting to climb again in 2020. The number of ounces held changes daily, but at the time of our writing there were a whopping 1.13 billion ounces of silver held by ETFs.
Why is investment demand rising? The silver price tends to rise with gold, which usually climbs when economic or market concerns surface. History shows that during times of economic uncertainty, market turbulence, or political conflict, investors turn to gold and silver as a hedge against the risks. Since there are now numerous financial and other risks around the world, demand for both metals is starting to rise.
To provide a reasonable prediction of the silver price, both short and long term, we must take into account that a rise in investment demand—the biggest impact on the price—could be underway due to elevated financial risks around the world.
There are other unique factors to silver that are likely to have an impact on the price…
Credit Suisse said that at the end of 2019 there was $230 trillion of wealth around the world. By comparison, the value of all known investment grade silver (coins and bars) is a mere $63 billion (3.5 billion ounces X $18 silver).
In other words, the amount of global wealth is 3,650 times bigger than all the investment silver available everywhere in the world!
Not all that cash will come into the silver market, of course. My point is that the silver market is so tiny that it doesn’t take much investment to have an outsized impact on its price.
And look at this comment that the Silver Institute included in their forecast:
If institutional investors begin to take positions in the silver market, they will have a significant impact on its price, much more than if they entered the Treasury or oil or stock markets.
Its small size is why silver tends to rise or fall than gold. In fact, because of this greater this volatility, silver has outperformed gold in every major precious metals bull market.
A silver prediction must include the fact that the market is small and can thus make the price volatile.
There’s one more situation specific to silver to be aware of at this point in history…
The Gold/Silver Ratio is at an Extreme
Ratio analysis isn’t a perfect valuation tool, but it can be particularly useful when one asset reaches an extreme compared to another.
And that’s exactly what we have in silver right now.
Relative to the gold price, the silver price has not been this undervalued in 28 years. The gold/silver ratio (gold price divided by the silver price) hasn’t been this elevated since the early 1990s. At the time of our writing it was 95—look how rare this reading is.
The gold/silver ratio is higher now than during the depths of the 2008 financial crisis!
This is an extreme reading historically. Importantly, as the chart shows, it won’t last. When the ratio reverses during bull markets, silver dramatically outperforms gold.
We don’t have to imagine what that might look like. Here’s the last four reversals in the ratio—look how much more silver gained than gold (green shaded areas).
Given this extremely stretched ratio, it’s likely that whatever the catalyst might be for precious metals, silver could easily spike to a much greater degree than gold.
By the way, Mike Maloney, the founder of GoldSilver.com, did a short video on this topic, saying “there’s only a few times in history where silver has been this undervalued.”
The lopsided nature of the gold/silver ratio, and silver’s undervaluation, must be taken into account when making a price forecast.
This article doesn’t touch on the other many catalysts that could impact silver. Frankly there are so many of them that they’re hard to catalog.
Suffice it to say that whatever impacts gold is also likely to impact silver—here’s a list of those catalysts, in our Gold Predictions article.
What I covered here are the unique circumstances that silver finds itself in, above and beyond the usual catalysts, and why the upcoming bull market could be bigger than many anticipate.
Based on all these factors, here’s my predictions for silver for both 2020 and five years out.
As I result of my research, I decided to purchase more physical silver. Here’s what I just bought.
I encourage you to consider that whatever the price may end up being a few years from now, silver is dramatically undervalued and represents a very compelling investment opportunity.