After having being bearish on precious metals prices during 2013 and 2014 (specifically gold), Forbes definitively turned bullish last year in a series of articles (e.g. my February 20, 2015 article “Why Gold Is Looking Lustrous Once Again,” my May 27, 2015 article “Three Gold Miners To Buy When Gold Bottoms Later This Year,” and my August 14, 2015 article “Why Now Is A Great Time To Buy Gold.”) Their then- and ongoing bullishness on the yellow metal centered on three major arguments: 1) annual mine supply to plateau due to miners’ focus on cost-cutting and balance sheet deleveraging in lieu of E&P activity over the last several years, 2) the long-term outlook for global monetary and fiscal policy remains highly expansionary; even in the U.S.—where the Federal Reserve is fully expected to hike by 25 basis points on December 14—policymakers have no choice but to increase spending as Social Security and Medicare/Medicaid spending is expected to drive our federal debt levels by nearly 10 percentage points of U.S. GDP over the next decade, and 3) ongoing increases in Chinese and Indian gold jewelry purchases, driven by the widening middle class and increasing income levels in both countries.
Silver prices have a strong historical correlation to gold prices. However, Forbes have deliberately avoided a (bullish) discussion on silver, as the price of silver marches to the beat of its own drummer. E.g. annual silver mine supply is mostly determined by lead/zinc/copper mining activity, as silver is mainly produced as a byproduct through mining of other metals. In addition, industrial fabrication makes up about 50% of silver demand each year, versus less than 10% for gold demand. This means the supply and demand dynamics for silver versus those for gold could and do vary from year to year.
- U.S. and Chinese policies are highly inflationary and will result in speculative flows into silver
- Silver mine production to decline over the next several year.
- Global industrial fabrication demand to recover and to remain strong