Silver Price Forecast: Is 2017 Going To Be A “Sterling” Year For Silver?

January 10, 2017

fine silver

2017 is here and the investing world is overwhelmed with views and outlooks for the first year of Trump’s Presidency. Apparently, gold has become some sort of “disappointment” of precious metal community. Consequently, all eyes are now on silver to become the investment of the year.  I am a Precious Metal Bull myself. Therefore, I can imagine you all must have read a few articles which present their cases on how silver is going to roar on 2017. Likewise, my report will try to outline the parameters which I believe would affect the silver price during 2017. Moreover, it is imperative to note not all are in favor of a strong bull market.

Silver Weekly Chart (Bullish)

Gold and silver have both reversed in 2017 - and have formed new mid-term highs. MFI indicator confirmed the capital in-flow which marks a long-term trend reversal -- and this conclusion is still valid. So far, the white metal has corrected more than 70% of its first impulse move, which is a good sign. Consequently, we should expect the next impulse (wave 3) to develop. It is worth-mentioning that according to Elliot wave rules: In a new bull trend, wave 2 may correct up to 99% of wave 1, which means as long as price has not breached the Dec 2015 bottom, silver market outlook is still bullish.   

US Dollar Index (Bearish For Precious Metals)

Gold and silver bottomed last year. Subsequently, most analysts turned bullish on these two precious metals. But after US elections, we can clearly see troubling signs, which begin with US Dollar Index bullish break out. To be sure this is not something to neglect. We shall constantly monitor the US Dollar Index - and if necessary, update its outlook and strategy. We have already discussed the bullish outlook of the US Dollar Index. Therefore, I will just assume you all agree with me in this regard. Naturally, a stronger USD is not going to be a bullish sign for precious metals.    

Government Spending And Industrial Metals (Bullish For Silver)

USA and China have already signaled they will authorize much more government spending in 2017. As far as gold is concerned, this is not good news. Nonetheless, silver may have a chance here. If these two superpower nations are serious about these plans, we should expect higher price for industrial metals including silver. It seems that markets have already moved in this direction. It is worth noting that after years of bear market, finally in 2016 we saw positive first impulses in the prices of commodities and metals, which is a significant signal. With increasing industrial demand, Silver could definitely benefit from this situation.

Silver Supply And Demand (Bullish)

Available report from the Silver Institute shows that since 2007, total global demand has been exceeding supply by an average of more than 12%. Although Johann Wiebe has outlined in his report that while such deficits do not necessarily influence prices in the near term, he added that multiple years of annual deficits can begin to apply upward pressure to prices in subsequent periods.

Silver Production And Costs (Bearish)

Mining costs have been falling since 2012…from more than $20 down to even somewhere around $11 per ounce few months ago. This is definitely good news for miners…but at the same time, it will encourage them to invest and boost supply which in turn may lead to lower prices in 2017. World silver mine production has been constantly rising for last 10 years, while silver fabrication has been more or less the same since 2013.

Gold-To-Silver Ratio

Gold/Silver Ratio is not the most reliable and accurate tool for prediction of the silver price movements.  However, there are periods when the ratio drops or rises to levels that could be considered statistically "extreme". Before the introduction of FIAT money, this ratio had been almost fixed to a narrow range of 12-15 for hundreds of years (up to the end of 19th century). At the time of the last great price surge in gold and silver (1980), the ratio stood at 17. Worthy of note was when silver hit its lows a decade later, the ratio peaked at 100. Again when gold and silver were at their all-time highs, this ratio was fluctuating between 30 and 44. At the time they hit recent 2016 lows, the reading was around 78 - and currently it is around 72, which is relatively high. 

As you can see from chart above, in the new millennium this ratio has been fluctuating between 40 and 80. It looks like there has been an overall understanding among big players to keep it within this range, which makes perfect sense to me. It’s not likely for Gold/Silver Ratio to get out of “control” and step out of this well-established rang…which means it has to contract.

Let’s take a look at other key parameters and do some math. Again, US Dollar Index just broke above its consolidation pattern and is on the rise, while gold failed to break above its 5-year down-trend. The worst case scenario for gold is that it makes a new low, let’s say around $900. If we do simple calculations, the results would be as following:

  • For current Gold/Silver ratio of 72, silver would be 900/72 which is $12.5 per ounce

    (This is not likely since the ratio has just peaked and should contract)
  • For Gold/Silver ratio of 60, silver would be 900/60 which is $15 per ounce.
  • For Gold/Silver ratio of 50, silver would be 900/50 which is $18 per ounce.
  • For Gold/Silver ratio of 40, silver would be 900/40 which is $22.5 per ounce.

(This is not likely to happen in 2017,since the ratio just peaked and requires time to consolidate)

Based on the above information, silver cannot lose much. Nonetheless, it doesn’t indicate that the price of silver is going to dramatically rise in 2017 as many analysts say it will. But from technical analysis point of view, the long-term bullish reversal is still valid. Consequently, we should expect the next impulse wave to drive the price of silver at any moment.


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