“For a precious metal, silver doesn’t seem very dear,” says Tatyana Shumsky in Barron’s. The price fell by 36% last year and has moved sideways in 2014, recently sliding back under $20 an ounce. Investors should not expect a rapid recovery.
Silver is a monetary metal, so it often tracks gold. But it tends to amplify gold’s movements in both directions, as the market is much smaller; last year gold fell by 28%.
The main problem now is that monetary policy is slowly returning to normal as growth improves, with the US Federal Reserve winding down its money printing, so higher real interest rates are on the horizon.
Tighter monetary policy should pre-empt inflation, while it also makes silver less appealing because it doesn’t pay interest.
Industries ranging from medicine to IT comprise around half of the demand for silver and the market’s focus will be on the plentiful supply, set to outpace demand for a sixth successive year. HSBC is pencilling in a 3.4% increase in 2014 while demand stays the same.
Geopolitical jitters could well give silver the odd fillip. But the overall fundamentals are discouraging. For now, at least, “silver has the worst story of all the metals”, says Adam Klopfenstein of Archer Financial Services.