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iShares Silver Trust (ETF) (SLV): Is 2017 a Good Time to Buy Silver?

Last year’s peak silver price of $21.07 serves to remind precious metals watchers of the rally the white metal enjoyed. This year started with silver prices nearly 15 percent higher than at the beginning of 2016, leading many investors to wonder if another rally is on the horizon and if now is a good time to buy silver before prices climb again.

Analyzing the factors behind the rise and fall in silver prices in 2016 can help shed light on whether or not another rally is possible in 2017.

Silver Price Factors of 2016

Early 2016 saw upward movement in all precious metals prices. Analysts attribute these increases to a number of factors: chief among them was safe haven investing due to fears of negative Brexit consequences.

Bargain basement prices for oil were a large factor in a weak equities market in early 2016, but the turnaround in the Dow created downward pressure in gold and silver prices, especially in Q4 after the U.S. election.

While the supply and demand equation for higher silver prices has been positive for some time, higher scrap prices and a decline in industry demand slowed the rally toward the end of the year.

Some silver market forecasters saw $20-plus silver prices as an important psychological threshold, but the factors in the second half of 2016 discussed above seemed to overshadow this strength. This inevitably created a shifting in assets in many portfolios, along with profit taking from the earlier rise.

Silver Price Factors of 2017

The price of silver has started with an uptick for the year, and three big factors could significantly influence whether or not they continue to rise: the state of the equities market at home; the economic and political climate of troubled countries abroad; and the market response to the end of silver price fixing by big banks.

1. U.S. Equities Market

Many market analysts are wondering how long the current equities market bull will run. The exuberance driving the market is increasingly out of sync with national and global economic and financial realities. In fact, a number of analysts are predicting a significant correction in 2017, with some even seeing the makings of a major crash. Such a reversal would, of course, redirect attention to safe haven investments like silver.

2. Global Economic Crisis

The second major question that market participants are asking is, “How many of the numerous economic and political threats to global security will come into play in 2017?”

While there are no Brexit-type political events on the schedule, there are a number of situations that can serve as market tipping points in the coming months. First, there are the ongoing problems in the EU, such as the Brexit consequences, the potential Deutsche Bank crisis, the threat of bank failures in Italy, and soaring Greek debt. Secondly, there are the massive amounts of fiat currency-backed debt in countries around the world, including the U.S.

Of course, this intimidating list does not include the possibility of disruptive actions by Russia or China or the totally unforeseen events that create demand for safe haven investments.

3. Free Silver Market

Perhaps the biggest silver news of 2016 was the revelation that big banks, such as Deutsche Bank AG, were involved in silver market manipulation. Further silver rigging was disclosed in December and the scope of the scheme expanded when documents Deutsche Bank provided as part of the original lawsuit implicated a slew of influential participants of the silver market: Bank of Nova Scotia, HSBC Holdings PLc, BNP Paribas Fortis SA, UBS Group AG.

Not only was nearly every big silver player in on the conspiracy but also the price fixing acts were particularly egregious. Traders called to talk silver prices before the markets opened; exchanged customer order-flow information with associates on the other end of deals; triggered customer stop-loss orders; and posted silver purchase requests with no intention of following through on them.

Now that it appears all of the perpetrators have been caught and free market forces may once again drive silver trading, we hope to see prices for all precious metals rise. With no one artificially deflating silver prices and inflating the dollar, the latter’s value will fall, thus sending the former skyward. We may then see a return to a more reasonable silver-to-gold ratio.

A restoration of the free silver market is not the only reason prices will climb. The whole price fixing fiasco has left investors disillusioned with paper assets and more confidant than ever in gold and silver.

Silver Price Forecast for 2017

With all of those factors in play, a number of analysts see a positive silver price forecast for 2017.  Even the conservative estimates are positive, with firms like HSBC focusing on the supply deficit and seeing an average price of $18.75. Other estimates see an increase of at least 15 to 20 percent in silver spot prices—even if none of the major events discussed above occur.

Significantly, there is a growing sentiment that increases in silver prices will extend well beyond the coming year. It may be that today’s silver prices will be seen as bargains as early as Q2 2017.

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