Gold and Silver Price Forecast 2016 – by illuminati silver – (part 2 of 3)


Welcome to illuminati silver, we tell you
the truth about silver. Today is Friday 19th February 2016 and we
are providing the second of 3 videos as to our predictions for gold and silver for this
year. We had proposed to produce just 2 videos, however their length would have been too great
and so we have produced 3. Video one in the series identified the 11 main factors we take
into account when assessing the gold market. In this video we shall also highlight the
factors we take into account when assessing the silver market and some of their implications.
The following 11 main factors are taken into account:
1. Value of the U.S. Dollar The U.S. dollar is still the world’s dominant
reserve currency, making it one of the main currencies that different countries hold for
international trade. The price of silver and the strength of the dollar have a pretty clear
inverse relationship; when the dollar is strong, silver prices tend to weaken, and vice versa,
except when the strength of the dollar occurs because of a thriving economy. This is because
Americans (one of China’s largest customers) purchase more electronic and industrial goods
when their economy is robust and the dollar has added purchasing power; thereby increasing
the demand for silver by manufacturers. 2. The Gold to Silver Ratio:
In 1792, the gold/silver price ratio was fixed by law in the United States at 15:1. The average
gold/silver price ratio during the 20th century, however, was 47:1. Today the GSR stands just
marginally below 80:1. Over the past 10 years the high has been a little over 83 and the
low 32 and over the past 12 months, the high again just above 80 and the low at 69.
So we can see currently, that the GSR is standing very close to a 5 year high and not that far
off a 10 year high. Bearing this in mind, we have to be cognoscente of the fact that
when these figures reach extremes, then we can expect a change in the price of either
of the two metals. 3. Gold to silver correlation:
In the world of investing, correlation is an important concept which has to do with
how different assets move in relation to one another.
The price of gold is one of the most important figures precious metal investors look at.
But gold is not the only asset in the precious metals market. Silver and mining stocks are
also very important. The exchange rate of the U.S. dollar is one
of the most important economic indicators for the U.S.-based precious metals investor.
The largest mining stocks are quoted on stock exchanges. Is there a relationship between
the miners and general stock market indices such as the Standard and Poor’s 500 (S&P
500)? This is something we analyse and is a topic for another video.
With regard to gold and silver, over the past 6 years, they have moved in unison almost
90% of the time so there is a 90% correlation between gold and silver and we take this very
much into account. Now the rate of change may be different but the direction has been
90% the same. Of course this varies during shorter time periods and at certain stages
last year for example the correlation dropped to as low as 65%.
4. Silver as an Industrial Metal Unlike gold, silver has hundreds of industrial
and medical applications and its span of usage is on the rise. Silver’s molecular arrangement
and chemical properties make it unique among earth’s elements. According to the Silver
Institute in 2014 industrial applications accounted for 56% of total physical silver
demand, which was marginally lower by 0.5 percent from the previous year. In view of
lower growth rates announced by world economies, we were expecting this figure to fall further
both as a percentage and in real terms to around 54% for 2015. The Silver Institute
predicts that these figures will increase in 2016, but frankly we are not totally convinced,
not on the industrial side at any rate. Regardless of this we are very much aware of the considerable
imports of silver into India primarily for jewellery purposes and build this into our
calculations. 5. Inflation
A common reason cited for holding gold is as a hedge against inflation and currency
devaluation. Whilst we have already mentioned that silver is currently running close to
a 90% correlation with gold, any trend towards or away from inflation will have a similar
impact to silver as to gold, though the degree is likely to be less when deflation dominates.
6. Global Crisis – Safe Haven Investment We mentioned in our first video that gold
is the ‘go to’ precious metal when economies hit a rough patch and investors withdraw funds
from the stock markets. Recent weeks have shown this to be the case. Whilst silver too
benefits from this increase in investment it generally does so because of its correlation
to gold, after all very few Fund Managers target silver as an investment strategy. Having
said that, silver has been known to be ‘the poor man’s gold’ and what we have witnessed
is an increase in physical silver buying by the investing public, occasionally causing
supply shortages at the various Mints (not of course to be confused with an overall shortage
in silver supply). For example 2015 witnessed the third largest ever purchase of silver
eagles in the US. 7. Buying from China and India.
We are all aware the impact the Chinese economy has on the rest of the world. We saw at the
beginning of this year that when the Chinese Stock markets fell, it caused contagion around
the world. Similarly China is seen as a major influencer on the price of Silver. In 2014
the Chinese demand for silver bars fell by 52% to 6.2 million ounces according to the
Silver Institute. Much was made of the potential increase in
demand for solar panels however The Silver Institute slashed the projected amount of
silver required for solar energy from over 100 million ounces in 2015 to 74 million ounces,
with a projection for under 70 million ounces required in 2016. Having said that it still
predicted robust demand by China nevertheless. On a more positive front India was projected
to import 29-33% of total 2015 silver mining production and Indian silver demand in 2016
is expected to grow on the back of increased investor interest and growth in jewellery,
decorative items and silverware fabrication. India, long a mainstay of global silver demand,
imported a record 228 million oz. silver bullion in 2015. Imports rose after a decrease in
scrap flows, calling for new supply to meet annual fabrication requirements, which is
a trend that is projected to continue. 8. Jewellery and coin demand
Jewellery fabrication is expected to increase by 5% in 2016, in contrast to a modest contraction
in 2015. While the market will likely see a decline in Chinese silver jewellery demand
— which accounted for 16% of the 2015 total for silver jewellery fabrication — growth
in other countries should more than offset China’s lower demand.
Coin demand could be robust once again in 2016, after a record 130 million oz. demand
last year. Demand will stay high this year as investors take advantage of relatively
lower metal prices in the first few months. Increased interest in safe haven assets, as
already seen in the year’s first weeks, will also be positive for physical silver
investment demand. In 2015, coin demand made up 12% of total physical demand.
9. ETF’s, Futures, Comex. Without going into these in detail, we mentioned
in video 1 that hedgers use futures contracts as a way to manage their price risk on an
expected purchase or sale of the physical metal. They also provide speculators with
an opportunity to participate in the markets without any physical backing.
The concern for many was the recognition that paper trades exceeded physical trades by approximately
300:1 thereby having an undue influence on the price. In addition with the silver market
being in backwardation for much of 2015 (where the spot or cash price of a commodity is higher
than the forward price) this again suggested that the market pricing mechanism was to some
degree out of kilter. In addition we keep an eye on registered and
eligible silver stocks held at the Comex, and are fully aware of their reductions in
2015. 10. Supply vs. Demand
Total physical demand is forecast to contract by 2.5% in 2015, to 1,057.1 Moz, primarily
driven by a 12.9 Moz drop in electronics demand. Demand from the electronics sector has been
falling since 2011, largely owed to thrifting and the trend towards consumer electronics
miniaturization. While these trends remain intact in 2015, the decrease has been precipitated
by a weaker economy in China, where silver electronics demand is expected to decrease
by 7.9 Moz, as well as in other developing countries such as India. China accounts for
28% of silver demand in global electronics fabrication.
However the Silver Institute had forecasted a 57 million ounce deficit for 2015 and amended
this in November to 42.7 Moz, marking the third consecutive year the market has realized
an annual physical shortfall. While such deficits do not necessarily influence prices in the
near term, multiple years of annual deficits can begin to apply upward pressure to prices
in subsequent periods. This year, however, net outflows from ETF holdings and derivatives
exchange inventories on a year-to-date basis have lessened the impact of the physical deficit,
bringing the net balance to ‑21.3 Moz. Global mine supply production could fall in
2016 as much as 5% year-on-year. This would represent the first reduction to global silver
mine production since 2002. The lower price environment gave little incentive for producers
to invest in expanding capacity at operations. Looking ahead, many analysts expect global
silver mine production to fall through 2019, as primary silver production drops from mature
operations The silver market deficit (total supply less
total demand) could widen in 2016, drawing down on above-ground stocks. The larger deficit
would be driven by a contraction in supply. 11. Trend Analysis and Technical trading
Without going into too much depth here, we do look at many forms of technical trading,
including moving averages and Elliott wave analysis. That said, we are generally fundamentalists
and therefore prefer to assess the markets on fundamentals as opposed to short term trades.
There is little doubt however that this can prove extremely difficult bearing in mind
that often information available is somewhat opaque.
So these are the main factors we consider when looking at our forecasts for the silver
price in years to come. Of course we go into much more depth and analysis with each of
these factors, but they briefly highlight some of the main considerations we contend
with. In addition we look at other commodities and price comparisons, geopolitical situations
and the political agendas of future Prime Ministers, Presidents and Kings and add all
of this into the mix. So please tune into our 3rd and final video
of this series which will be released on Sunday and provide the gold and silver prices we
anticipate for 2016. We hope you have found this video interesting
and informative and if so, please give it a thumb up and share it on twitter. Also kindly
visit our website at www.illuminatisilver.com and look at our Facebook page which is updated
daily at www.facebook.com/illuminatisilver Disclaimer: Illuminati Silver owners come from a background
of Banking, International Wealth Management and Economics. Having now retired from these
worlds we are not qualified to give investment advice. Therefore, this and other productions
must not be deemed to be giving such advice and merely represent the personal views of
its owners.

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