Silver Price Forecast – The White Metal Is Catching Up

October 19, 2020

silver price analysis

For years, silver was regarded as just an alternative to gold. However, in recent months, the white metal started to shine closely towards gold. With all the investment stress revolving around the latest surge of COVID-19 cases, the U.S. Presidential race, and the predicted slow recovery of the economy, silver prices can get even a lot stronger soon.

Keeping pace with the global events, silver stayed behind gold for years. But things have changed recently. Since the coronavirus tumbled both global health and the economy, safe-haven alternatives started to become attractive again in a time of crisis. Consequently, gold started its strong rise which resulted in a record price back in August, and white metal did an excellent job as well.

We’re all familiar with how gold is being used throughout the world as a prime precious metal. However, silver is so much more than a monetary asset and material for wedding rings. It is arguably one of the most significant industrial metals. But is silver only important as an industrial metal?

It is not only an industrial metal, and not just any industrial metal, for that matter. It has served as money for centuries, much longer than the fiat currencies have been used. Its specific properties are also widely used in many industries (best conductor of heat and electricity), and perhaps the only more versatile commodity than silver is crude oil.

The first verse of the Correlation Matrix shows just how closely silver moves along with gold – the flagship monetary metal. The link is not particularly strong in the long run, but it is still strong enough despite that.

And what about the link with copper – which we’ll use as a proxy for the industrial metals?  

There are times when silver and copper move in opposite directions. However, merely stating that they move in adverse directions for a few days is not particularly informative. It is just a very brief move that is being examined, and both moves could have been just random noise.

Just like the existence of snowballs doesn’t negate the fact that ice caps are melting at an accelerating rate, observing just a few days when silver and copper move in the opposite directions doesn’t mean that they will move in the opposite directions for longer.

Taking the last few years into account, there were periods when silver moved together with copper (recently) and periods when it moved in the opposite direction (in late 2016).

There were also times when both markets moved relatively independently from each other, and there were times when one market led the other. The latter would be quite informative if it wasn’t for the fact that sometimes silver leads copper, and sometimes it’s the other way around.

The bottom part of the above chart tells us that copper and silver are positively correlated for most of the time, but the link is far from being carved in stone.

So, what can the link between copper and silver tell us? Exactly what we wrote previously. Namely, silver is an industrial metal, but not only that. It’s also a monetary metal. In other words, silver has a dual nature.

What does the above mean for the future? It means that its performance could be less than perfect if the general stock market slides, but it will most probably catch up with gold in a major way, once stocks finally bottom and start to climb once again. The demand for silver will only grow higher, which means that the price will rise as well.

To sum things up, even though prices moved higher in previous months, the following weeks are possibly not the best time for jumping on the bullish bandwagon. As many times before, what’s profitable initially is rarely the thing that pays off in the long-run. As silver often moves in close relation to the yellow metal, forecasting gold’s rally without a bigger decline first is likely to be misleading.

The times when gold is lastingly trading well above the 2011 highs will come again, but they are unlikely to be seen without being preceded by a sharp drop first.

Naturally, the above is up-to-date at the moment of publishing, and the situation may – and is likely to – change in the future. If you’d like to receive follow-ups to the above analysis, we invite you to sign up for our FREE gold newsletter for daily updates. Sign up today.

Przemyslaw Radomski, CFA

Editor-in-chief, Gold & Silver Fund Manager

Sunshine Profits - Effective Investments through Diligence and Care

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All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses are based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are deemed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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Przemyslaw Radomski, CFA, is the founder, owner and the main editor of SunshineProfits.com.

The word ‘silver’ originates from the Old English Anglo-Saxon word 'seolfor'

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