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3 Reasons Silver Could Be Poised for a Big 2017

The last four years have not been the friendliest for buying and selling silver. Though the long-term price of silver has significantly risen over the last 100 years, the last peak the silver market experienced was in March 2013, when it sold at $34.97 an ounce. We are now in the $18 neighborhood.

The question is, will silver show dramatic increases this year? Money Metals believes it will.

You can go online and look at all sorts of charts and projections for precious metals. One such chart from 2013 showed silver eclipsing $200 by 2018. That goal looks unrealistic at this point, but there is still plenty of optimism for 2017. There are several very valid reasons silver could be poised for a big year.

As those reasons are addressed in the following paragraph, keep in mind that those who invest in silver do not do so only with ROI in mind. They also buy for the purposes of wealth protection in the event paper currencies fail.

1. Federal Budget Deficits

There is an unfortunate link between the value of precious metals and currency manipulation by central banks. The world’s central banks have a habit of manipulating currency in line with government budgets. Why? Because governments rely on central-bank manipulation to protect themselves against their own budgetary decisions. Such is the case with the U.S. federal government.

Washington continues to spend significantly more than it takes in. This is no secret. Though any American household would collapse under its own weight using the same spending practices the government engages in, the reality of bankruptcy does not stop the politicians and bureaucrats from deficit spending.

The obvious result of deficit spending is that the U.S. dollar is worth less. Government must print money to meet its obligations, and that only goes so far, so they must borrow in order to cover the deficits. This leads to economic instability and weakness in paper currency.

Thanks, President Nixon

It should be noted that U.S. deficit spending, though problematic, was not nearly as volatile while gold still backed the dollar. But when President Nixon abolished the gold standard in 1971, he started off the U.S. down a path of virtual insolvency. One of the only reasons the dollar remains as strong as it appears to be is the fact that it is the reserve currency through which the world trades. But that is unlikely to last forever. Already countries like Russia and China are trading with OPEC using their own currencies.

2. Decline of the Dollar

The second reason for purchasing silver goes hand-in-hand with the first, and it is the ongoing decline of the U.S. dollar. To be clear, the dollar is not suffering huge declines against other paper currencies given its status as the world reserve currency. But against precious metals, the dollar continues to decline year after year.

Paper money is inherently worthless if there is no tangible asset to back it up. Most of the world’s currencies suffer from this problem. Therefore, paper money only retains its value as long as consumers and their governments agree that it has value. If and when that agreement ceases, paper money becomes worthless. That is why the dollar continues to decline against silver.

As a precious metal, silver has its own inherent value. It is a tangible product that can be held in the hand. It can be kept in a safe deposit box or stored with a silver dealer as a certificate. The point is this: silver is a tangible asset that has intrinsic value regardless of how paper currency fares on the open market.

As the U.S. dollar declines further against precious metals, the value of silver will climb dramatically. And at this point, it does not look like the dollar will regain any strength in light of the fact that Washington doesn’t show any real desire to curtail spending. As long as Washington continues to print money to sustain its deficit spending, the value of the dollar will keep falling against silver. That means the price of silver will go up.

3. Growth of U.S. Debt

Last is the continual growth of debt in the U.S. That debt is both government and private debt, and it continues to grow while being subsidized by an agreement between the government and the financial sector to let it continue without disruption.

How does that affect the price of silver? Well, remember that investors purchase silver as a means of protecting wealth in the event of paper currency decline. Rising U.S. debt makes the likelihood of such a decline greater with every passing quarter.

Imagine the typical household already living at the edges of its budget. If that household continues to take on debt through credit card spending, the financial hole only gets deeper. Continuing the cycle of debt and spending eventually leads that household bankruptcy. This is where the U.S. is headed, as a whole.

The federal government and its state counterparts continue to spend at record levels without enough revenues to keep up. U.S. consumers continue buying everything from new cars to high-priced electronics on credit. At some point, all this borrowing is going to lead to an untenable situation in which the well of borrowed money dries up. Then what?

Protect Your Wealth

The point of this piece is not to predict a catastrophic collapse in the U.S. economy. Such a collapse is unlikely due to the number of controls put in place after the Great Depression. However, a repeat of the previous decade’s Great Recession is not beyond the realm of possibility.

Federal deficits, a dollar that continues to fall against silver, and the ongoing growth of both public and private debt all point to economic conditions favorable to higher silver prices. MoneyMetals.com suggests silver could add as much as $20 this year alone, which would more than double its current price. Silver is definitely an asset to consider right now.