Valerie Medleva2020 has been quite a year. Against the backdrop of the global health crisis, political and economic turmoil and a weakening US dollar, commodities known for their safe-haven properties such as gold and silver have become assets of choice for many investors looking to diversify their holdings and mitigate the risks.
Do you also want to add some “shine” to your portfolio but cannot decide which precious metal to go for? In this article, we walk you through silver’s performance so far in 2020 and check out what factors will likely drive its price going forward. To help you make informed investment decisions, we also review what the latest silver price predictions look like according to Wall Street analysts.
Silver price analysis for 2020: the darkest hour is just before the dawn
The white metal has been on a wild ride so far this year. After a relatively strong second half of 2019, silver started 2020 at $18 per ounce, inching higher to $19 per ounce in February. However, the broader sell-off across global financial markets followed as the start of Covid-19 lockdowns prompted investors to exit their positions. The commodity plummeted 38 per cent to hit an 11-year low of $11.74 per ounce on March 18.
Unlike many other assets, silver recovered quickly as investors sought a safe haven in precious metals. Already by July, its price had soared to $24 per ounce. Manufacturing activity started to slowly recover in summer, increasing industrial demand for the physical metal. This, coupled with strong investment demand, helped to make the silver price outlook brighter than ever.
In the meantime, the DXY Index, which tracks the performance of the US dollar against a basket of major currencies, had been sliding lower, falling to a two-year low in August, giving further support for commodity prices.
DXY Index chart
Silver continued to push higher to eventually trade at a seven-year high of $30 per ounce on August 6. Until mid-September, the price was fluctuating in the $25-$29 per ounce range.
As the US dollar started to pick up after bottoming out on August 31, silver prices fell to $22.68 per ounce on September 23. During the week ending September 25, the metal shed nearly 16 per cent.
An ounce of silver remained in the range of $23-$25 throughout October, with financial markets getting ready for one of the world’s most anticipated events of 2020: the US presidential election. At the end of the month, the DXY Index climbed to the 94 level. And while typically a stronger dollar is a bad sign for precious metals, silver has still managed to gain ground.
Silver price chart
On the back of the rising uncertainty, silver prices have been on a hike from October 29, breaking through the $25 per ounce mark to trade at $25.10 at the time of writing, November 5.
The market’s positive trend has set investors’ silver price expectations rather high. But will the commodity be able to justify them?
Silver market forecast: factors to drive price in the weeks ahead
It is rather hard to predict the future of any financial asset, especially in times like these. Firstly the US election is still a cliffhanger, and it could take days before a winner is declared. Moreover, the country is now waiting for further monetary and fiscal stimulus from the government and the Fed, which will, in turn, impact the value of the US dollar. Secondly a spike in Covid-19 cases worldwide has exacerbated fears of a slow economic recovery, with many nations going into a second lockdown.
Given the ongoing political and economic uncertainty, investors are likely to continue buying into the precious metal as a safe haven, supporting silver prices.
On the other hand, renewed measures to control the second wave of coronavirus will likely see industrial activity curtail. And as silver is known for its dual properties of both a precious and industrial metal, investors should get ready for increased volatility ahead. While lower demand does not necessarily mean a plunge in prices, it can still limit silver’s gains in the near term.
What do Wall Street analysts think about the commodity’s future? Let’s check what some of their latest silver price forecasts look like.
Silver price forecast for 2021 and beyond: more gains ahead
In a report published at the end of October, analysts at Metals Focus said they see silver prices going "well above" $30 per ounce. They anticipate silver to get an upward momentum after the results of the US election are known: "Almost irrespective of the outcome of the US election, fresh large-scale fiscal and monetary stimuli seems inevitable, given an uncertain economic recovery and still high Covid-19 cases. The same may apply to Europe where record infections and new lockdown measures have also cast doubts about the solidity of the anticipated economic recovery. The case for silver (and gold investment) will therefore remain strong."
"This is the main assumption behind our forecast that the silver price will break through the $30 mark during 2021."
While Metals Focus’ long-term silver prices forecast is bullish, they still warn investors of the possible near-term volatility: "A slower than expected economic recovery and still elevated unemployment rates globally will continue to weigh on the recovery in industrial, jewellery and silverware demand."
In September, CIBC bank also predicted the metal to appreciate, estimating silver prices to reach $32 per ounce in 2021, and then slide to $31 per ounce in 2022 and $30 per ounce in 2023. As for the shorter-term, the commodity is expected to average at $28 per ounce in Q4 2020.
CIBC analysts explained: "The outlook for continued low real interest rates, increasing government debt burdens coupled with geopolitical uncertainty arising from the upcoming US election are all supportive of further significant price appreciation."
Analysts at Citi (C) are also optimistic about the metal’s future. The bank’s silver rate prediction is $40 per ounce over the next 12 months, with the growth driven by a combination of robust investor demand and a recovery in industrial demand.
The analysts wrote in their advisory note: "We expect that investor demand for precious metals exposure will remain high during 2021 as pressure on governments to devalue currencies, concerns about vaccine efficacy and take-up rates and questions over equity and bond valuations and rising global debt remain in most scenarios."
The bank also added that its foreign exchange technical team sees the potential for silver to reach $50 per ounce, or even surge higher – up to $100 per ounce – in 2021.
Goldman Sachs (GS) also believes 2021 to be a good year for the commodities market, recommending investors to go long on silver, gold, copper, US natural gas and Brent Crude oil.
Predicting a return of 30 per cent on the S&P’s GSCI (Goldman Sachs Commodities Index) over the next 12 months, the analysts wrote: "We see trends in rising social need, alongside investor complacency over inflation, as raising the political risks of policy with an inflationary bias. Accordingly, we expect an increased rotation into commodities as an inflation hedge."
Another silver prediction comes from Capital Economics, whose analysts see the price of silver making moderate gains in 2021: "All in all, a market deficit in conjunction with a higher gold price should lift the price of silver to $25 and $27 per ounce by end-2020 and end-2021, respectively. Demand for non-interest bearing safe-haven assets, such as gold and silver, should rise as real yields in the US drift a little lower."
In the meantime, according to JP Morgan’s silver forecast, the commodity is set to trend down during 2021.
Based on the silver price forecasts from a famous online forecasting resource, Wallet Investor, the commodity will fall to end this year at $23.8 per ounce. However, it is then expected to end 2021 trading at $26.5 per ounce and appreciate to $31.5 per ounce by October 2025.
On the other hand, according to Trading Economics’ silver spot forecast, the metal is expected to trade at $23.48 per ounce by the end of this quarter and drop to $21.30 in the following 12 months.
Read more: Copper price forecast for 2021: moderately bullish with strong headwinds
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
