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Precious Metal Outlook 2016: Have Silver Prices Hit Rock-Bottom?


Silver Prices: Sellers Failing to Take Precious Metal Lower

Silver prices continue to underperform. The precious metal is down roughly 10% year-to-date and with this, there are a lot of questions as to whether silver prices could go even lower and if it’s even worth looking at it.

You see, I am not too worried about silver prices taking a hit. As alien as it sounds, I actually see the selling in the silver markets calming a bit. I’ve noticed there’s a significant amount of resilience building up and sellers are really struggling to take the precious metal’s prices lower. A bottom could be nearing.

Understand this: silver prices topped in 2011. The gray precious metal increased a little in 2012, but then in 2013, it really took a hit. With this said, look at the table below. It shows the return in silver prices from 2013 to 2015. (Mind you, 2015 isn’t done just yet, but let’s assume the year-to-date return for this year will be close to the return for the full year.)

Notice something interesting? The rate of decline in silver prices has slowed down significantly since 2013. At the very core, pessimism, when looking at the action in silver prices, is diminishing.

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The Real Reason Why Silver Prices Are Falling and Why Looking at the Big Picture Is Important

A decline in silver prices isn’t the only thing that should be watched carefully. It’s very critical to pay attention to what’s happening on the bigger level.

It must be understood that one of the biggest reasons silver prices are sliding lower is due to the Federal Reserve’s take on monetary policy. Next week, we will find out what happens in terms of the Fed’s next move, but here’s what must be known: interest rates are and will still be low.

Please see the chart below of the federal funds rate over the last 25 years and pay close attention to the “X” to the bottom right of the chart.


Effective Federal Funds Rate Chart

Chart courtesy of


You see, to bring in some perspective, the federal funds rate is expected to increase from 0.25% to 0.50%. In the grand scheme of things, even with the increase, interest rates will be nowhere close to where they were before the financial crisis or their historical average.

Also, know that there’s already a significant amount of talk regarding problems brewing when interest rates do rise. The bond market is just one of the places where troubles could arise. If this actually happens, it will make silver an attractive place for investors to safely park their money.

How to Benefit When Silver Prices Rise

With all this said, let’s do some simple math; if silver prices go from $14.00 an ounce now to $30.00 an ounce (remember that they were at that level not too long ago), this would translate to a return of more than 110% if you just owned bullion.

However, take a look at silver mining companies. Pan American Silver Corp. (NASDAQ/PAAS) may be one example. It currently trades at $7.00 per share. However, when silver prices were at $30.00 an ounce, this stock’s price was near $20.00 per share. If silver were to return to its $30.00 level, mining companies like Pan American could see a 185% return. Please note that this is just an example of what kind gains could be attained if silver were to return to the $30.00-an-ounce level and it is by no means a recommendation to buy Pan American.

Courtesy of Profit Confidential, by Moe Zulfiqar



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