Is Silver Undervalued? 3 Reasons it Could Be

The silver price has dropped significantly over the past five years, falling from around $35 per ounce in 2012 to just over $16 today. But many expertsanticipate a rally.

Analysts polled by FocusEconomics expect a minor silver price uptick in the short term – they see silver averaging $17.60 in the fourth quarter of 2017 and $17.80 in 2018. Silver’s rise is expected as part of a larger precious metals rebound caused by geopolitical developments and a weaker US dollar.

Other silver market watchers are even more optimistic. For instance, Keith Neumeyer of First Majestic Silver (TSX:FR,NYSE:AG) has said in the past that ifgoldhits $10,000 per ounce, silver could reach $1,000. While that’s an extreme prediction, he’s not alone in thinking the silver price is undervalued. Here’s a look at three reasons why it could be.

1. Growing demand

Over half of all silver is consumed for industrial purposes. The white metalis used in a variety of different applications, including technology, jewelry, manufacturing, electronics and even nuclear energy. Demand from the solar power industry is especially high at the moment, and grew by 34 percent in 2016.

Apart from industrial demand, the white metal also benefits from investment demand. It is widely known as a safe-haven asset, and increases in value when investors face economic and geopolitical uncertainty. Lower global interest rates also contribute to silver investment demand.

While some believe that silver is undervalued given its diverse uses, others have argued that spikes in silver demand tend not to last long. For example, Shelley Goldberg of Bloomberg notes that while the silver price has benefited recently from increased demand from the solar industry, this demand should drop off as manufacturing processes become more efficient.

Similarly, silver investment demand tends to rise and fall. While itwas extremely high in 2015, it fell from those levels in 2016. Overall, worldwide dem