Wallace, Idaho - Silver price-watchers could be in for a boring couple of years while demand and support for the poor man's gold consolidate around current levels.
That's the word from the respected, if somewhat bearish, CPM Group whose founding partner, Jeff Christian, has been a reliable source of market information over the past several decades.
CPM's 208-page Silver Long-Term Outlook 2013 relies on market trends and supply and consumption data dating back to 1950 in its effort to look ahead through 2022. The upshot is, we're in a flat-line trend through the middle of this second decade of a long-term secular bull market not uncharacteristic of previous such bull markets.
The first decade of this market was quite the joyride, with the price of silver rising at a compounded annual rate of 23.2 percent between 2002 and 2011. It was in one of those later years I lost a $100 bet that silver would hit $50 by year-end - a bet Jeff Christian told me I should never have made.
It got close, but beginning in 2012 it commenced a backward slide, falling 11.7 percent to an average price of $31.17 an ounce. This year has been even uglier, with the price through September averaging 20 percent less than during the same period one year ago.
“This declining trend is expected to persist in the medium term, with prices consolidating through 2016,” Christian said.
By then there will be plenty of blood in the streets, investors will have lost all interest in silver, and that will be the time to jump in with both feet. “Prices are projected to touch fresh record nominal highs in the latter half of the 10-year projection period, backed by a revival of investor interest in the silver market and stronger industrial demand relative to the first half of (the decade),” CPM predicts.
Much of what has driven silver from its average price of $4.95 per ounce in 2000 to its current level has been investor demand, which of late has waned. Investors added more silver - 170 million ounces - to their inventories in 2012 than in any given year since 1980, notes CPM.
“Much of this accumulation was bargain hunting, as a large share of investors believed silver prices would head back toward their 2011 highs in the short term. When silver prices continued to fall in 2013, a growing number of investors began to reassess and adjust their posture toward the silver market. Many investors sold off large portions of their bullion bar inventories.
“Still, some investors continue to believe that prices around current levels were bargain opportunities. Although investment demand is expected to remain positive over the next ten years, declining demand is expected to weigh heavily on prices in the medium term,” the report forecasts.
With a decreasing (relative to inflation) silver price over the next three years, however, we can look forward to increased demand for jewelry and flatware which were price beyond the reach of many during the millennial run-up. Newly-mined silver will enter the market at a slower rate given the difficulty, indeed “increasingly hostile environment” of financing new mining ventures.
“Increased difficulty in securing funds for projects (already in the works) is expected to extend a bulk of projects' timelines. The weakness in supply growth expected over the medium term will help support prices amid declining investor interest in the market,” says CPM.
Come 2016, investors are expected to approach the market more positively as economic conditions improve relative to the first half of the projected period.
“Investors are expected to step up their purchases, backed by expectations for strong capital appreciation amid rising industrial demand for the metal. In this scenario, silver prices could rise rapidly, possibly touching fresh record highs within the next ten years,” concludes CPM.
It's the same-old, same-old story. When that time arrives three years hence when nobody, absolutely nobody, wants anything to do with silver, get your cash out and be ready for some serious upside thrills.
