Silver: I Revise My Prior Analysis

Includes: SLV
by: Discount Fountain

I revise my prior bullish analysis on silver.

While there are fears of a recession, it is unlikely that this will be as severe as that witnessed in 2009.

While silver might see some gains, I see limited upside on the whole.

Back in November of last year, I made the assertion that silver prices could be set to rise going forward.

The main reason for arguing this was that taxes in the United States would eventually need to rise to service a growing government debt, and a concurrent fall in consumer spending would be the trigger for a recession.

However, investors made a good point regarding my analysis - so what?

We all know that another recession will materialize sooner or later - what is the point in holding on to silver if the same doesn't materialize for another ten years?

From looking at past price performance for this commodity, it is clear that silver is only going to see significant movement in a strong recession (such as that of 2009), where demand for equities and other risk-on assets have plummeted:


In this regard, the question must be asked - are we really looking at a recession similar to that of 2009 in the near future? If so, is a rise in silver a dead cert?

To answer this question, it helps to look at a few major economic indicators for the United States. Looking at the below reveals some interesting insights.

Government Debt


It is not necessarily a solid argument to say that because government debt keeps rising that this will eventually give way to a recession. We see that the increase in government debt has been a long-term trend (even during the Clinton administration). Moreover, it would appear that as an economy grows, this is accompanied by a long-term increase in government spending. A classic example of this is China, where government spending has risen exponentially over the past few decades:


Household Debt to GDP

Household debt to GDP in the United States is at a far lower level than that of 2009.


Home Ownership


Home ownership rates are still at a far lower level than that of 2009 - a housing bubble is far less likely today than it was over ten years ago.


Inflation rates were at significantly higher levels than they are today:


Interest Rates

Interest rates were also significantly higher:


All in all, while there are fears of a significant recession due in part to the issues surrounding trade wars between major economies, the U.S. economy itself is not operating near peak potential as would have been the case before 2009.

In this regard, my view is that even if the economy does witness an economic decline, it will be nowhere near as serious as that of 2009, and it is unlikely that silver would see the massive run that it did a decade previously.

Silver might see some upside from here, but it is likely to be modest. For instance, prices were up by just under 7% when the S&P 500 retreated by 5% through to 2019:


In light of revising my prior analysis, I take the view that silver is not going to see very great upside in the near future. Yes, the economy is going to undergo a correction sooner or later - it's simply part of the business cycle. However, I see little evidence to suggest that another 2009 recession is on the way - we can expect limited gains for silver accordingly.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.