Why Hasn’t Silver Completely Broken Out?

Whenever central banks engage in stimulus schemes that flood financial markets with cheap liquidity, attention almost always turns to investments that can store value. Obviously, when a central bank works to actively devalue its currency, it is a good idea to start shoring up, or preserving the value of a currency by tying it to a commodity. Gold and silver are the natural safe havens of investors who are spooked by the prospect of cheap liquidity. This is exactly what played out with the recent appreciation in gold and silver prices.

However, silver prices may not hold up that well over the midterm. Why? Silver is both an investment commodity and an industrial commodity. In fact, there is still a lot of silver being produced every year for industrial purposes. If you were to look at silver primarily as an investment vehicle, you would be hard pressed to see it prosper beyond the midterm. The global industrial demand for this shiny metal is simply cooling down.

Primarily used in electronics and solar panels, the weak growth in the global economy is putting downward pressure on silver. Moreover, increases in silver production surely don’t help. This is why it is interesting to note that while normal investor behavior tends to jack up the price of precious metals and other commodities during times of economic uncertainty, this hasn’t happened on a sustainable basis with silver. The Internal Monetary Fund has forecasted the global economy will slow down over the next three years. This hasn’t exactly triggered a flight to quality that you would expect.

There are definitely serious supply and demand issues that are getting in the way of silver breaking out into boom market territory. In fact, as the American economy continues to improve, the price of silver continues to drop. Just how badly has silver performed during the past two years? Silver plunged by 48% as the U.S. economy continues to get back on its feet. If IMF projections for continued U.S. economic improvement pan out, this is only going to spell further bad news for silver investors.