Three catalysts that could see silver return more double-digit returns in 2016
Since the start of 2016, Silver rose from $13.82 an ounce to $17.32 today - an incredible 25% increase in a few short months.
But there are three catalysts that could send silver even higher. Here they are:
Catalyst #1: Demand for silver coins and jewellery boost silver sales in the US
There are two factors that are boosting the demand for silver, which is great news for silver investors:
1. Silver jewellery is back in fashion. A recent survey by the Silver Institute shows that silver jewellery sales rose for another year. That makes it the seventh straight year of gains. Two thirds of jewellery retailers saw silver sales increase 15% on average, while their silver inventory increased an average 21%. What’s more, these retailers are confident that the upward trend in silver sales will continue.
2. Another attractive factor for silver investors is, people couldn’t get enough of silver coins at the start of 2016. The US mint has sold nearly 15 million ounces of Silver American Eagle coins – a 25% increase from 2015. And if the trend continues, you could see around R60 million ounces being sold in 2016. What’s more, there’s massive demand from China for cast bars and demand from the US and Germany for bullion and coins.
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Catalyst #2: Global economic growth lowers and central banks continue with negative interest rate policies
During the past few years of low interest rates in the world, there has been a tremendous uptick in the amount of silver coins that have been sold by the US Mint, Royal Canadian Mint, and other retailers.
Now we’ve entered into a world where some countries like Japan, Sweden, Denmark have implemented negative interest rates. Basically, people are paying the bank to keep hold of their money, which makes no sense.
DailyWealth editor, Steve Sjuggerand says, “The logic is simple…When both gold and paper money pay you zero percent interest, you should prefer gold over paper.”
This is true for silver as well. Central banks can’t print silver as they do with paper money.
Secondly, we’ve seen the International Monetary Fund (IMF) downgrade global growth forecast for this year to 3.2%, down by 0.2%. This is due to China’s slowdown and weak commodity its taking its toll on emerging markets, while developed countries still recover from the 2008 global recession.
So investors will continue to turn to safe haven assets like silver, when they’re worried about volatile global markets.
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Catalyst #3: Silver/Gold ratio reveals silver is trading at an attractive discount
The silver-to-gold ratio shows the amount of silver required to purchase one ounce of gold. And it’s currently sitting at a record high of 72. When the ratio is high, it means silver prices are trading at a discount compared to gold.
During the depths of the 2008 global financial crisis, the silver-to-gold ratio was around 80. When silver soared to its high of $49, the silver-to-gold ratio bottomed to around 32.
But as I mentioned, this ratio has slowly started ticking upwards (around 72) which means silver is getting cheaper and cheaper every day compared to gold.
So these are the three important catalysts you should watch for, because they could help silver continues its impressive bull run in 2016.
Two simple ways to tap into silver’s massive bull-run in 2016
If you want to invest in silver you can buy physical silver bars or coins from silver retailers and store it like you would with gold.
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Or you can cut the hassle of owning physical silver and invest in a low-cost instrument like an exchange-traded note (ETN). A Silver ETN tracks the performance of the silver price in dollars. You get the full benefit of investing in silver without having to own the physical metal. You can buy this ETN usually through your broker.
If you do decide to add silver to your investment portfolio, I recommend you allocate at least 10%-15% to silver.
Always remember, “Knowledge brings you wealth”
Editor, Stock of the Month