The Year Ahead in the Money Metals

By Stefan Gleason, Gold Seek The “year that was” brought mostly disappointment to precious metals bulls. Silver prices fell for the third straight year, while gold mostly flat-lined around the $1,200 per-ounce level. So what about the year to come? On the one hand, the charts look ugly. On the other, it is rare for any metal to fall in price four years in a row. As for the fundamentals of precious metals, they are actually getting better. The down-trending prices we’ve experienced improve the fundamentals for physical precious metals in two important ways: · First, by discouraging new supply from coming on line. In 2014, many miners were forced to suspend operations as gold and silver spot prices fell below production costs. · Second, by encouraging more jewelry demand for gold and more industrial consumption of silver. Screen Shot 2014-11-23 at 7.41.58 AM On December 10, the Silver Institute released a report (“Glistening particles of industrial silver”) analyzing the industrial uses of silver from various sources. Silver is used in batteries, computers, automobiles, cell phones, hospitals, nanotechnology, and solar panels just to name a few. The gist of the report is that industrial demand for silver is likely to increase across the board in the coming years. Silver’s total industrial demand is forecast to grow 27% through 2018, meaning an additional 142 million ounces of silver will need to be supplied. It’s doubtful that miners will be willing to grow their silver production at current prices. Another positive sign for metals is the resilient and even increasing demand for physical bullion among investors. Despite price weakness in 2014, which inspired a lot of badmouthing of precious metals in the financial media, silver coin demand hit new records. The U.S. Mint sold more than 44 million Silver Eagles, up from 42.7 million the prior year. At one point last fall, the dysfunctional government mint had to suspend orders because it couldn’t keep up with demand. The ongoing bull market in silver coins should translate into a resumption of the bull market in silver prices in the months ahead. Yes, silver has fallen harder and stayed down longer than most of us thought. But adverse market conditions such as these make for the greatest buying opportunities. The other white metals are also positioned favorably for future price appreciation. The platinum and palladium markets are both projected by metals refinery Johnson Matthey to run a supply deficit in 2015. Palladium’s deficit is expected to grow to more than 1.6 million ounces. That would be the biggest shortfall ever recorded. The value now available in precious metals is especially compelling considering the major alternatives. Savings accounts still yield nothing. Bond yields are still near historic lows. The U.S. stock market is now significantly overvalued by many measures, including its trailing price/earnings ratio of 26 and its 20% premium over total gross domestic product. The ratio of the Dow Jones Industrials to the price of gold now stands at more than 14 to 1. For perspective, the ratio got as low as in 6:1 in 2011 and 1:1 at the 1980 top in gold. The ratio has plenty of room to revert back in gold’s favor. Continue Reading>>>

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