Recent weeks have seen some turnaround for gold and silver prices, as well as sentiment amongst the investment community. We are cautious to say for certain that the bottom has been reached, and the period of growth is upon us, but the signs are starting to show. A number of factors could affect how both precious metals perform over the coming months, but let’s examine three possible facilitators that could propel gold and/or silver into exciting growth territory.
The first facilitator is silver mine production. Specifically, let’s talk about Mexico. Mexico is the world’s leading producer of silver. Early 2013 forecasts showed Mexico’s silver production growing year over year, but it is currently pacing to end the year down about 10% year over year. Thus there is a silver shortage in the country that produces the most silver. Most of this decline is from the Zacatacas region, which is down about 22% year over year. Whether miners are able to make up the loss so far this year remains to be seen, however basic economics tells us that if supply is down, and demand is up, then prices will go up as well.
The second facilitator is similar to the first, except that we’re talking South Africa instead of Mexico, and gold instead of silver. The gold shortage in that country is due to striking miners and labor disputes. South Africa produces about 10% of the world’s gold, and is thought to possess more than 40% of the world’s remaining gold reserve (gold that is still in the ground). With this much gold and significantly less miners working than normal, the gold supply may soon see a significant hit. Again, decreased supply and increased demand will lead to higher prices.
The Fed is the third facilitator. If and when the Fed plans to taper the $85 billion per month economy stimulus efforts, as it has teased, then the economic effects will certainly impact the gold and silver markets as well. In times of economic uncertainty, people often turn to gold and silver, as they have historically acted as hedges and have survived every other financial crisis in history. In other words, don’t be surprised to see more people buying gold and silver soon, driving up the prices.
In short, the time to buy gold and silver is now. Prices remain low, but not for long. $30 or more per ounce for silver and $1,500 or more per ounce for gold is not nearly as far off as it was at the beginning of August. Buy now when the rates are low, and invest long term.