Gold Prepares to Rally

Since then, the precious metal has been in a correction phase that has seen it, along with gold miners, remain range-bound.

But that may be about to end.

All the fundamentals that pushed gold above the $2,000 mark are not only present, they’re more entrenched. Inflation, ultra-low interest rates, government stimulus spending and, of course, the COVID-19 pandemic.

Now also we have the unresolved debt ceiling debate, along with a likely fourth pandemic wave, which should help put an even more solid floor underneath the gold price.

On top of all this, we have other indicators suggesting that gold and gold stocks, in the near term, could be set to run.

That makes now an opportune time to allocate to the gold mining sector in advance of broader recognition by the market.

Falling Real Yields Point to Higher Gold

If there is one chart that captures why the setup for gold is so bullish right now, then this would be it.

The single best predictor of gold price direction is real interest rates.

The 10-year inflation adjusted yield is the most widely used indicator for real interest rates which, essentially is 10-year rates minus inflation. That’s the real return on an investment in a 10-year U.S. Treasury.

And right now, that real yield is pathetic. Not only is it pathetic, at -1.11%, it’s the lowest it’s been…ever.

In fact, it’s also below what it was 12 months ago, back when gold reached an all-time nominal high at $2,060. Which suggests gold should be even higher right now.

And what’s happened since then?

The US dollar index may have peaked at 93 after rallying on the back of the Fed’s slightly hawkish taper talk. But Powell just recently said the US had not reached “substantial further progress” in order to start curbing the Fed’s $120 billion monthly bond purchases.

Powell also repeated that raising interest rates was not even being considered yet. The likeliness rates will only rise more than two years from now, combined with persistent inflation, explains why real interest rates have continued falling.

Although a lot of the inflation talk was about how much lumber prices had soared, and recently dropped, the rest of the commodity complex has actually held very steady, with some components rising further. The expanding money supply and fiscal easing to support an economic recovery are deep-rooted. So I expect inflation, weakening currencies, and investors to shift towards assets that will offer protection in this kind of environment.

Remember, the Fed continues to say that recent high inflation is transitory, and they’ve been saying that they are willing to let inflation overshoot 2% for some time to average out to 2% over the longer term. They call this “symmetric” inflation targeting. And the European Central Bank has just announced it will drop its just-under 2% inflation target, and instead aim for “symmetric” inflation targeting as well. These are two major central banks saying they’re happy to let inflation run hot for some time.

Perhaps they’re considering that the U.S. Economy may not be as healthy as it appears. It expanded at a 6.5% annualized rate in Q2, but actually missed consensus forecasts of 8.4%, which is likely what caused the Fed to back off on the tapering talk. What’s more, consumer price inflation (CPI) forecasts have crept higher, with US levels expected to rise to 2.5% for 2022.

Sophisticated Investors Buying Gold

While many central planners continue to disparage gold, what they’re doing with their money is quite the opposite.

In May alone Thailand bought 46.7 tonnes in May, Turkey added 8.6 tonnes, Brazil bought 11.9 tonnes making for its first purchase since 2012. Kazakhstan bought 5.4 tonnes, Poland 1.9 tonnes, and India 0.9 tonnes.

Serbia’s National bank said, “Long term, gold is the most significant guardian and guarantor of protection against inflationary and other forms of financial risks.” President Aleksandar Vucic recently indicated the National Bank of Serbia was looking to up its holdings from 36.3 to 50 tonnes of gold.

Commenting on central bank buying James Steel, chief precious metals analyst at HSBC said, “If a central bank is looking at diversifying, gold is a marvelous way of moving out of the dollar without selecting another currency”.

Recent buying has likely been bolstered by economic recovery and higher oil prices, encouraging emerging market nations to boost their gold holdings. The latest estimates show a trend in gold buying from central banks as they increasingly look to diversify their reserves.

Akash Doshi, along with other Citigroup analysts, wrote in a report that if the economy continues to gain steam, central bank buying might reach as high as 1,000 tonnes. That would be very impactful, and would represent over 20% of the annual 4,500 tonne gold supply.

This mindset is even permeating through to actual government-level treasury management. The state of Idaho recently passed House Bill 7, the Idaho Sound Money Reserves Bill, with overwhelming support. The Bill, to be heard in the Senate, would permit – but not require – the State Treasurer to hold some portion of state funds in physical gold and silver to help secure state assets against the risks of inflation and financial turmoil and/or to achieve capital gains as measured in Federal Reserve Notes.

Time For Gold Stocks

And yet gold is down about 10% after a 12-month long correction. Naturally, since they leverage gold prices, gold equities have gotten proportionally cheaper.

Looking back over the past two decades, gold and silver miners have never had such a favorable profitability profile.

In fact, they recently completed their largest debt repayment ever and have never enjoyed such high levels of free cash flow.

Still, gold miners remain invisible to most investors. However, some of the most astute market participants are noticing just how irresistible this sector is right now.

The following chart plots the VanEck Vectors Gold Miners ETF (NYSE:GDX) against the gold price. When gold stocks start outperforming gold, it suggests a new rally phase has begun.

I believe that’s what we have right now. Over the last three weeks, GDX has been gaining on gold, even as its price has been rising. At the same time, both the RSI and MACD momentum indicators are confirming this move, and have plenty of room to run higher before becoming overbought.

What could go wrong? The biggest risk is that the U.S. dollar could regain some strength. Technically, there is a reasonable argument for this, as the 50-day moving average has just crossed above the 200-day moving average forming a bullish “golden cross”. Still, momentum indicators point to further downside. Fundamentally, with Treasury yields so low and falling, the dollar would have to decouple from these to head higher. I think the odds are relatively low. And still, gold can rally even with a strengthening dollar.

One great way to play this setup is to own the VanEck Vectors Gold Miners ETF (NYSE:GDX) itself. It’s an ideal one-click way to buy a basket of some of the world’s largest public gold miners and gold royalty companies. You get instant diversification for a 0.51% expense ratio, with immediate exposure to the gold mining sector. It’s got $14.6 billion under management and great liquidity with an average 20 million shares traded daily.

In the Gold Resource Investor newsletter, I provide my outlook on which gold and resource stocks offer the best prospects as this bull market progresses. Since adding a gold miners ETF to the portfolio in late 2018, it’s already up over 90%, with plenty of room to run higher.

I’d be hard-pressed to think of a more promising setup. While most other asset classes and sectors are well overbought, gold and gold stocks are bargains by several measures. This is the place to be as gold prepares to rally.

The Silver Bull is Not Transitory

At its latest FOMC meeting the Fed naturally decided to keep the fed funds rate target at 0.25%.

It also decided not to mess with the $120 billion monthly bond buying program to help “support the flow of credit to households and businesses.” Par for the course.

Meanwhile inflation numbers of the previous four months have been anything but typical. The Fed’s favored Personal Consumption Expenditures Price Index has soared: in February it was 1.6%, March 2.4%, April 3.6% and in May 3.9%.

But headline CPI recently came in at 5%, reaching a 10-year high.

These recent months of elevated and increasing prices may have been exacerbated by price plunges due to the COVID-19 pandemic. But those were for a few months, and their effects should already have dissipated. And yet, they haven’t.

In fact core inflation, which excludes volatile energy and food prices, recently touched 3.8%, its highest in 30 years.

The Fed is looking increasingly wrong in its assessment that the inflation numbers we’ve been seeing are transitory. That means investors would do well to seek shelter from inflation-protection assets. And as I’ll show, for multiple reasons, chief among them is silver.

Silver is Cheap Vs. Stocks

It’s always informative, and sometimes eye-opening, to look at asset prices in relation to other assets. It usually provides good perspective on relative pricing. In that vein, there’s little more surprising than to see just how cheap silver remains relative to the S&P 500 ratio.

The following chart shows the long-term ratio of silver to the S&P 500.

It’s currently sitting near its 50-year lows. For what it’s worth, silver would have to rise by a factor of 63 times just to match its level at its $50 peak in 1980. While this might sound sensational, my point is these conditions have existed in the past. This alone suggests explosive potential upside as the stock market matures and likely corrects, while silver continues to climb.

Physical Silver Demand Remains Elevated

Of course, protection from inflation and uncertainty are great reasons to buy and own silver. And as I described above, inflation appears to be coming back with a vengeance. In any case, many investors are hedging against the risk that it becomes entrenched.

In the past 15 months, prices for physical silver are higher than normal. That’s because demand for physical products has remained elevated, leading to sustained high premiums over the spot price. And that’s if you can even get your hands on them. Many of the most popular coins and bars have been persistently out of stock. Premiums are typically 40% or higher, which is nearly triple normal levels.

What’s more, in its recent World Silver Survey 2021, the Silver Institute is forecasting continued strength this year. They expect physical demand to climb by 26% after a very strong 2020. In fact, they foresee overall demand, from all sectors, to be up by 15%, nearly doubling supply growth of 8%.

One area of note is demand from flexible electronics. The Silver Institute indicates demand for silver in printed and flexible electronics is about 48 million ounces annually. They forecast demand will rise to about 74 million ounces in 2030, absorbing 615 million ounces of silver in this decade alone.

As technology becomes increasingly commonplace in our daily lives the world over, printed and flexible electronics are likely to play a bigger role. Consider that wearable electronics like smartwatches, appliances, medical devices and a host of internet-connected devices are exploding in use. Sensors for light, motion, temperature, moisture and motion all make use of printed and flexible electronics.

So, it’s natural that the electronics subsector promises to be the fastest growing demand for industrial silver usage.

Silver’s Seasonal Outlook is Bullish

Another indicator that now may be a great time to be bullish on silver is its seasonal trend.

The following is a 45-year chart, from 1975 to 2020, which averages the annual silver price tendency.

From this, it’s quite clear that silver tends to mark a mid-year low right at the end of June. And from that point on, on average, the silver price enjoys a strong third quarter.

How to Play Silver Now

In my view a basket of silver stocks is a great way to approach the high potential of this sector right now. One of my favorite options to accomplish this is the ETFMG Prime Junior Silver Miners ETF (NYSE:SILJ). With over 1 billion in assets and average daily volume over 1.5 million shares, SILJ offer plenty of liquidity to enter and exit at will.

Its top ten holdings represent over 63% of overall assets. And these include Hecla Mining (NYSE:HL), Pan American Silver (TSX:PAAS; Nasdaq:PAAS), First Majestic Silver (TSX:FR; NYSE:AG), MAG Silver (TSX:MAG; NYSE:MAG), Yamana Gold (TSX:YRI; NYSE:AUY), Hochschild Mining (LSE:HOC), SSR Mining (TSX:SSRM; Nasdaq: SSRM), SilverCrest Metals (TSX:SIL; NYSE:SILV), Turquoise Hill (TSX:TRQ; NYSE:TRQ), and Endeavour Silver (TSX:EXK; NYSE:EXK).

In the end, the Fed is all about managing expectations, not about tell us what we should really expect. Therefore, actively hedging for inflation with a silver miners ETF such as SILJ looks like a great option with a lot of potential upside.

One thing is certain; silver is in the early days of a massive bull market. That’s why in the Silver Stock Investor newsletter I provide my outlook on which silver stocks have the best prospects as this bull market progresses. One stock in the portfolio is up 50%, and several more are up over 30% since the start of 2021 alone. Many offer 5x to 10x return potential in just the next few years, especially as silver heats up.

Remember, silver’s been rising on balance for the last couple of years, and looks primed to rally strongly on the back of multiple drivers.

The key takeaway is that silver’s bull market is anything but transitory.

For a look at all of today’s economic events, check out our economic calendar.

Money is Cheap, Own Gold

The White House recently sent a $6 trillion budget plan to Congress.

Let that sink in for a moment.

Biden’s first wide-ranging budget calls for big spending on infrastructure, education and, of course, climate change. His plan lays out $6 trillion in spending against just $4.2 trillion in revenues. That’s an enormous 37% bump up from 2019 spending levels, and it suggests a deficit of $1.8 trillion, nearly double that of 2019.

The idea is to spend now while money is cheap, with interest rates at historical lows. In fact, they’re at the lowest levels in 5,000 years of history.

Bernie Sanders said it was “the most significant agenda for working families in the modern history of our country,” explaining that the budget would reduce poverty through the formation of millions of good-paying jobs.

But deficits pile on to become debt. Repaying that debt becomes a massive burden, so governments use financial repression by keeping interest rates low. That eases the challenge of repayment, but it leads to big inflation.

So the next generation’s best hope is to shield itself with hard assets, with gold chief among them.

A Debt Explosion

It took the US 211 years, from 1789 to 2000 to rack up $5.7 trillion in debt.

From 2000 it had doubled, within just 9 years, to $12 trillion in 2009. Since then, it has more than doubled again, currently weighing in at $28 trillion.

More than half of the entire U.S. public debt, over its 230 year history, has been created in just the last decade.

This chart shows quite clearly that things accelerated in 2000, and then exploded higher with the Global Financial Crisis. The COVID-19 pandemic has just added gasoline to that fire.

And now we’re looking to pile on even more.

According to the IMF, at $28 trillion, US debt is about 133% of GDP. Italy is at 157%, Canada is at 116%, France is 115%, the U.K. at 107%. For comparison, Japan’s debt is near 257% of GDP.

But before you start thinking all is fine because we’re nowhere near Japanese levels, let me throw some cold water on that thought. Consider that a study by the World Bank suggests national debt-to-GDP ratios above 77% for extended periods cause significant slowing in economic growth. In fact, it concludes that each percent above 77% actually costs 1.7% of economic growth.

And for perspective, U.S. debt-to-GDP peaked at 106% after World War II, then dropped consistently to a range of 30% – 40% in the 1970s. Levels have risen since then, but the mortgage crisis that became a financial crisis in 2008 pressed down on the accelerator, and the 2020 COVID-19 pandemic has the pedal pressed firmly against the floor.

Prices Soar

The U.S. Department of Labor reported that the Consumer Price Index climbed 4.2% from April 2020 to April 2021. This means consumer goods prices have jumped the most in any 12-month period since 2008.

Many of the trillions of dollars we’ve added to our collective debts have started floating around. There are few goods and services we can point to that haven’t soared in price.

Food is no exception. The UN’s Food and Agriculture Organization (FAO) food price index tracks international prices of the most globally traded food commodities. From mid-2020 to end March, (except for meat, so far) food prices had risen for nine straight months. In fact, every food had set new 3-year high levels, other than meat, which may be undergoing substitution.


Of course, even under pandemic restrictions and lockdowns, people still had to eat. So that helps explain support and strength in food prices. But it goes way beyond food.

Major international consumer goods producers Procter & Gamble, Kimberly-Clark and Coca-Cola all recently cautioned they will be raising prices as their raw materials costs have risen.

This next chart demonstrates that in spades.

Source: Katusa Research

At Berkshire’s annual shareholder meeting earlier last month, Warren Buffet said that “We are seeing very substantial inflation. It’s very interesting. We are raising prices. People are raising prices to us and it’s being accepted.” “We’ve got nine homebuilders in addition to our manufacture housing and operation, which is the largest in the country. So we really do a lot of housing. The costs are just up, up, up. Steel costs, you know, just every day they’re going up,” he added. Berkshire also owns Benjamin Moore Paints and Shaw flooring, as well as businesses across multiple industries. If anyone has the pulse on inflation, it’s Buffet.

Money Velocity Kick Starts Inflation

We can also look at this from the perspective of money velocity. The velocity of money is essentially the rate at which a dollar is exchanged in the economy from one entity to another over time. The next chart shows that’s been falling dramatically since the late 1990s. Interestingly, this coincides with the big ramp up in public debt since.

But the Fed just may get the inflation it’s so eager for. And not a moment too soon.

Money velocity could kick into high gear and start ramping up as the pandemic’s limits on activity start to fade. There’s a whole lot of pent-up demand out there with people eager to travel, renovate, go to concerts or sporting events, or just enjoy a restaurant meal.

There is precedent. As stated in the recent annual In Gold We Trust report by Ronald-Peter Stoeferle and Mark J. Valek,

In 1933 and 1946, the velocity of money was similarly low, and in both cases the US government resorted to radical measures. In January 1934, it devalued the US dollar against gold by almost 70%, and in the period 1946–1951 it enforced financial repression in cooperation with the Federal Reserve, which capped interest rates at a low level. Both times, this massive intervention resulted in significantly higher inflation rates in the years that followed. Currently, the velocity of money is at even lower levels than in 1933 or 1946. We expect history to repeat itself and central banks to seek their salvation in financial repression.

Piling on record historical global debts and holding rates down at 5,000 year lows is likely to stoke inflation like we haven’t seen for a long time.

Gold has been sensing this since 2000, but has kicked into high gear once again since late 2019. You’ve no doubt seen and felt increases in food and pretty much everything else. The Fed says the recent bump in inflation is transitory, but the action in precious metals says otherwise. It’s why gold prices are up 42% in just the last two years.

Sustained high inflation, coupled with low nominal interest rates, creates an environment of extended negative real interest rates. And that’s when gold thrives. At $1,900 gold is still 9% below its all-time high. But adjusted for inflation, gold is still 26% below its 1980 all-time high.

In the Gold Resource Investor newsletter, I provide my outlook on which gold and resource stocks offer the best prospects as this bull market progresses. I recently added a low-risk, deep value gold royalty company to the portfolio which I believe has exceptional potential to outperform its peers over the next year. It’s already up 23% in just 2 and a half months.

With money so cheap, record global debt will keep expanding as governments keep spending money they don’t have. That coupled with historically low interest rates and a likely resurgence of money velocity means inflation will rear its ugly head.

It’s time to fight back. Own gold.

For a look at all of today’s economic events, check out our economic calendar.

Time for Silver-Backed Crypto?

Its market recently exceeded $1 trillion. That’s a long way from its humble beginnings shortly after the 2008-2009 financial crisis.

Bitcoin will keep facing challenges as some governments disparage and regulate it, while others try bans of one form or another.

I doubt that will meet with much success. Big name money managers and high-profile tech entrepreneurs have gotten on board, many reversing their earlier doubts.

Bitcoin is decentralized, the blockchain is verified by over 100,000 independent nodes globally, and it has a hard limit supply of 21 million coins. Other cryptos and central banks may want in on this sector, but there will only ever be one Bitcoin.

Still, I think precious metals-backed cryptos could become serious contenders in the digital currency revolution, as the world looks for the security of safe havens with the convenience of crypto.

Crypto De-Fi Revolution

Bitcoin has come a long way. Today, it’s gained not only the acceptance of big-name investors like Paul Tudor Jones, Ray Dalio and Elon Musk, it’s been integrated by a number of well-established payment systems. MassMutual, a 170-year old insurance behemoth, bought $100 million worth of bitcoin last December. In February, Tesla announced it had bought $1.5 billion worth.

And crypto as a sector is exploding. PayPal recently said it was investing heavily into a new business unit aimed exclusively at cryptocurrencies. Their idea is to facilitate cryptocurrency payments across PayPal’s network, and this by the end of 2021. It’s all part of a burgeoning trend called decentralized finance, or DeFi.

Remember, there are an incredible 29 million merchants who use Paypal, meaning they will be able to accept cryptocurrency payments through that network. In fact to simplify things, PayPal will automatically convert the crypto payment into the national currency of the merchant.

The big advantage for merchants is the speed of transaction clearing. Credit card and bank payments typically take 24 hours or longer to settle. With crypto that will happen within seconds or minutes, allowing merchants to access their funds much sooner.

Just recently, Visa announced it would allow customers to use the USD Coin cryptocurrency to settle transactions on its network. USD Coin is a “stablecoin cryptocurrency” whose value is pegged to the U.S. dollar. This follows on the heels of Mastercard, BlackRock and BNY Mellon all confirming they would be facilitating crypto transactions for investments and payments.

Despite all this, some challenges remain.

Central Bank Digital Currencies

Many people can’t get past the idea that there’s nothing physical backing Bitcoin. And if you have no electricity you can’t get at your crypto.

The fact that nothing’s backing most cryptos is not that different from the currency we use today. It has value because central banks say so and people accept it. So that’s not the biggest hurdle. However, if there is a large and extended power outage, then there’s a real problem as crypto has to be accessed on a computer, tablet, or smartphone.

But these hurdles haven’t stopped numerous central banks from researching and implementing digital currencies. As the following chart shows, central banks around the world have been busy developing their own CBDCs (central bank digital currencies).

Over 60 central banks are currently working on this, so CBDCs are soon coming to a country near you.

These are not the same as cryptocurrencies. Central banks love the idea of eliminating cash. That’s because it allows them to track every dollar or other currency unit they create. That way they know who spends how much, when, where and on what.

The level of control that will ultimately give them will be unmatched. And the COVID-19 pandemic has massively accelerated this trend.

There are over 400 million people in China and India without a bank account. “Unbanked” people would have easier access to tax refunds or stimulus checks. China is pushing hard and fast towards making itself into a “cashless” society. It’s planning to make the 2022 Beijing Winter Olympics a completely cash-free event.

Don’t think the U.S. is willing to be left behind. This past February, Fed Chair Jerome Powell said a digital USD is a “high-priority project…We are looking very carefully, very carefully, at the question of whether we should issue a digital dollar.” Around the same time, Treasury Secretary Janet Yellen told the New York Times, “It makes sense for central banks to be looking at” CBDCs, adding that “too many Americans don’t have access to easy payments systems and banking accounts, and I think this is something that a digital dollar, a central bank digital currency, could help with.”

CBDCs can be created and distributed much more easily and quickly than existing currencies. This is a major problem in my view (think inflation), but it’s a major advantage if you’re a central planner.

Already the world has reached an astounding $281 trillion in total global debt, or more than 355% of world GDP. If CBDCs are adopted, I expect they will hasten this trend. Eventually, the entire financial system is likely to need a total reset.

Precious Metals Backed Crypto

I believe precious metals will have a major role to play. Even if I’m wrong on that point, they will still likely soar as inflation hedges.

In fact, I think that ultimately we may have a gold and/or silver backed crypto currency that is government mandated, once faith in fiat currencies is completely lost and a reset is required. That new currency will have both intrinsic value and the conveniences of crypto. And if that currency is on a blockchain which logs all transactions, then it can be very secure.

There are already several cryptos backed by precious metals or that are in the development stages. One of the biggest advantages of this approach to owning precious metals is that it allows ownership of small amounts, without dealing with storage issues, while offering security and the ability to easily and quickly transfer value to someone else.

Here are a few companies that are active in this space. For example, Aurus ( has built a platform allowing refineries, distributors and vaults to autonomously tokenise precious metals. There are other similar developments:

  • deVere Group has the Pax Gold crypto, which is backed by a portion of a London Good Delivery gold bar
  • Dignity Gold company has secured $6 billion in gold from mining claims in Nevada and Arizona for its DIGau digital token
  • Lode ( has the AUX Coin which represents 1 milligram of vaulted, audited, insured and verifiable gold bullion, and the AGX Coin is 1 gram of silver

(Note: I provide the above for informational purposes only. I am not endorsing any of these companies).

Even if precious metals backed cryptocurrencies don’t replace CBDCs, they are very interesting as they may go a long way to solving the problems of storage, security and rapid transferability.

This is certainly an area of precious metals to watch closely. People may well gravitate towards this as they seek a highly practical store of value, based on one of the oldest forms of real money: gold and silver.

One thing is certain; precious metals are in the early days of a massive bull market. That’s why in the Silver Stock Investor newsletter I provide my outlook on which silver stocks have the best prospects as this bull market progresses. Many offer 5x to 10x return potential in just the next few years, especially as silver heats up.

And crypto may be the next major source of demand for precious metals, helping to push silver and gold much higher in the future.

For a look at all of today’s economic events, check out our economic calendar.

Silver to $300

No, I haven’t lost my mind. After all, it’s a metal that’s known for massive rallies.

You see, when silver went trough its 1970s bull market, it started from a low of $1.31 in October 1971. By the time it reached its peak in 1980, silver had run all the way up to $49. That was a 37x return.

If we consider that silver was priced at $4.20 in late 2001, a 37x return would take it to about $155. However, I think this bull market could be an order of magnitude larger for a number of reasons, the main ones being debt, credit and money printing.

As a result, I think silver’s ultimate peak could be $300, and I won’t rule out possibly even higher.

Bullish Silver Fundamentals

Most developed and many developing nations have been in multi-year or even multi-decade deficit scenarios. This now looks to have become a permanent state, at least until we reach some sort of global financial reset.

The Institute of International Finance explains how the COVID-19 pandemic response added $24 trillion to the global debt mountain last year, to reach a new all-time record high of $281 trillion.

And interest rates being maintained at 5,000-year lows will only encourage more debt. Couple that with many countries borrowing to meet interest payments, and central banks soaking up much of that new sovereign debt, and inflation havens like precious metals gain strong appeal.

Silver in particular has the added benefit of 50% of its demand being industrial. With unprecedented economic stimulus programs, many favoring green energy, silver is uniquely positioned to profit. What’s more, according to Metals Focus, silver supply was down 4% in 2020 by 42M ozs. According to the Silver Institute, total supply will rise by 8% this year, though total demand will rise nearly twice as much, by 15%, led by industrial, jewelry and physical demand.

So the fundamental side of silver demand is looking strong, but the technical side is also very bullish.

Bullish Silver Technicals

Let’s consider the gold silver ratio.

As a quick refresher, the gold silver ratio is calculated by simply dividing the spot price for one gold ounce by the spot price of one silver ounce. That’s it. Naturally the higher the ratio, the more silver ounces are needed to buy one gold ounce, and vice versa. The most bullish scenario is when the ratio is falling from a high level, ideally from above 80, and the silver price is rising.

Here’s a chart of the gold silver ratio during the 1970s silver bull market.

To me it’s very intriguing to note how recessions, which are the grey vertical bars, tended to mark troughs and/or peaks in the ratio. What’s also interesting is that when silver reached its peak in 1980, the gold silver ratio ultimately bottomed around the same time at a level near 15, which was below the starting point near 20.

Let’s now move to the current silver bull market which I believe began in 2001. The following chart shows us silver prices since 2000, not adjusted for inflation.

Of course, silver had a tremendous run from $4.20 in 2001 to its 2011 peak at $49. It then corrected until late 2015, then moved sideways until bottoming near $12 last year in March. It had a tremendous move up to $30 within just 5 months and has been mostly consolidating since.

Now let’s examine the gold silver ratio action since 2001.

Again we see peaks and troughs tend to occur (though not exclusively) around recessions (grey bars). At silver’s peak in 2011, the ratio bottomed near 33. It then rose almost constantly up to its all-time peak last March at 125, then fell dramatically to its current level around 67, as silver started to significantly outpace gold. Consider that we know from history silver always outperforms gold in precious metals bull markets. So the current action is particularly exciting for silver.

Silver Targets

But what does it all mean for how high the silver price can go? Of course, no one knows for sure. But there are some indicators worth examining for clues and suggestions.

I believe the ratio will ultimately reach a low near 15. And given the inflationary path we’re on, I think gold could peak at $5,000 per ounce. That’s just 2.5 times last August’s peak near $2,000. In fact, I think there’s even a decent chance gold could reach $10,000, which is just 5 times last August’s peak. But if we stick with $5,000, and an ultimate bottom in the gold silver ratio of 15, we get ($5,000/15) $333 per ounce of silver.

Let’s look at silver price targets from another angle: inflation.

If we consider inflation-adjusted silver prices going back to 1970, we see that the peak reached in 1980 was actually $120/ounce in today’s dollars, and that’s using government sanctioned inflation statistics, which tend to be well below what we experience in everyday life.

Considering the old way of calculating inflation, which the U.S. abandoned decades ago and I reference below from, a realistic inflation rate would have averaged 7% – 8% since 1980 (triple official inflation), which would mean an equivalent silver price of $240-$360 dollars at the 1980 peak.

My gold silver ratio target for silver of $333 is comfortably within the range of $240-$360. If we take the mid-way point between $240 and $360, we get $300. I think that’s as good an estimate as any of where silver can peak in its current bull market.

On this basis, the silver price would need to be up by more than 10x from current levels to reach its ultimate high. Imagine for a moment, if silver were to soar tenfold from here, what the silver producers’ and silver explorers’ share prices would do. It’s not difficult to expect simply spectacular returns. Which is exactly why it’s so attractive to allocate to this space, while being diversified across several stocks, as it’s impossible to know which will do best. Still, odds are very good that if silver goes up by a factor of 10, the average silver stock should easily double that, and be up by a factor of 20, while the most successful juniors could gain 50x or more. That would simply be a repeat of previous bull markets.

Larger silver producers and royalty companies should be seen as core positions to be held for the long term. The more junior explorers should be treated more cautiously as speculations, on which to take profits when they materialize. Selling half of one’s position on a double would be especially sensible.

In any case, I believe it remains early days for silver and silver stocks. I expect to see much higher prices ahead in the metal and the equities. And in my view the current bout of weakness is an opportunity to buy or add to positions in this space. Remember, at $26 silver is still nearly 50% below its all-time nominal high, while gold is just 10% below its all-time nominal high. Silver is clearly the better relative bargain.

In the Silver Stock Investor newsletter, I provide my outlook on which silver stocks have the best prospects as this bull market progresses. Many offer 5x to 10x return potential in just the next few years, especially as silver heats up.

I think silver is currently at or very close to its bottom, but that its ultimate peak could well be in the $300 range.

Either way, silver is headed much, much higher.

For a look at all of today’s economic events, check out our economic calendar.

MMT: Medieval Monetary Theory

We’ve certainly not heard much about it in mainstream economics or investment publications. But I do think it’s gaining traction.

In my view, MMT is a very big deal because of its massive implications to our economic future. And so, I think it’s worthwhile having at least a basic understanding of the concept.

In fact, if you’re reading this, odds are good you’ve at least heard of MMT and you may have some idea of what it’s about. If that’s the case, you probably understand better than most the importance of investing in hard assets that can’t be inflated at the whim of central planners.

And right now, the two most undervalued hard assets remain gold and silver.

Roots of MMT

Some say, and I agree, we don’t live in a true free-market society. In many ways, that’s been especially so since the U.S. central bank, the Federal Reserve, was established in 1913. I could certainly go into a whole long discussion about the Fed and its roles and mandates, but that’s a topic worthy of its own essay.

MMT was first introduced by American economist Warren Mosler in the early 1990s. It has gained a lot of traction in recent years, championed in particular by Stephanie Kelton, economics professor at SUNY Stony Brook. Kelton authored the book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy. Kelton was also an advisor to Bernie Sanders’s 2016 presidential campaign, and a former Chief Economist on the U.S. Senate Budget Committee (Democratic Staff).

For the purposes of understanding MMT, suffice it to say that because the Fed sets interest rates, we don’t have a free market in one of the most basic and pervasive aspects of our lives: money. Actually, a better word is currency, because money is supposed to have intrinsic value. And today’s fiat dollars only have value because central banks issue them and government decrees say we have to accept them.

So, if interest rates are set by a central authority, the central bank, then the market for currency is not free, as they are deciding at what rates currency is to be loaned out.

Interest rates are essentially the “price” to borrow money or currency. In a free market, that price should be set between the lender and the borrower. In fact, rates set by central banks are used as the barometer for banks and businesses to establish contracts and make economic projections. So, you can see how this makes its way through the economy and skews nearly every aspect of our lives. That’s why I feel that we don’t live in a free market, and haven’t for a long time. Anyways, back to MMT.

MMT is the idea that federal spending is not limited by revenues: printing money is a tool to be used to help a country deal with its economic issues, and that it will not automatically trigger inflation or currency devaluation. Proponents believe governments who print and spend their own currency should not be limited in their spending to avoid deficits and a growing debt. They say deficits and debt don’t matter unless they begin generating inflation.

Not the Real World

It needs to be pointed out here that this is a departure from the way the rest of the world works. A company or an individual cannot operate on that basis. Firstly, they don’t print their own money and so they don’t have that luxury. They also cannot borrow to infinity because at some point creditors will force them into bankruptcy.

That exact scenario can’t happen with a country, because MMT says it can just keep printing its currency to pay for spending and to pay interest on debts. But in fact, it’s a vicious circle in which the public eventually loses confidence.

If you look back throughout history, fiat currencies have all failed eventually, with the typical “world reserve currency” lasting about 100 years on average.

Looking at the above chart, and if history repeats or at least rhymes, then the current reserve currency, the US fiat dollar, has already overstayed its welcome.

We don’t need to look too far to see concrete examples of this. In the late 1990s to mid-2000s, Zimbabwe printed endless Zimbabwean dollars to pay its bills. Eventually, they ended up with 100 trillion-dollar banknotes. Their currency became so worthless, no one wanted it. Something similar has been happening in Venezuela, which is dealing with hyperinflation to the tune of over 10,000% per year thanks to a badly mismanaged economy rife with price controls. Nearly 80% of Venezuelans can’t afford basic food, while 95% of households live in poverty.

It won’t surprise you to know that MMT says that a nation’s currency has value because the state has issued it, and because only that currency is accepted to pay taxes. That makes earning the currency of that nation necessary to pay those taxes. In effect, the currency has value because of government decree, and not because the free market has accepted it as having value.

Proponents of MMT see the treasury and central bank as one. They argue the central bank is there to print whatever the government needs, while the treasury’s role is to collect taxes and allocate funds to various departments which spend it according to their budgets. Anything needed beyond what’s collected in taxes is simply printed into existence to make up the shortfall.

One thing to keep in mind is that central banks only control short-term rates. For the most part, long-term rates are determined by the market. And that’s where inflation fears will often show up first. That’s likely what we’ve been witnessing over the last several months in U.S. long-term Treasuries, whose yields have risen dramatically. In effect, the market is saying those bonds are now worthless, which pushes up their yields, as it senses higher inflation on the horizon.

MMT advocates say even if people lose confidence in their currency, they can’t simply abandon it as they need it to pay their taxes. But if the government can print all it needs, why even bother to collect taxes? MMT thinking says that if inflation shows up, the government can then increase taxes to cool things off, making them a necessary part of the equation.

Though these days central banks have certainly lost a lot of the public’s confidence, the little that remains is partly from the “perceived” independence they have from the central government. MMT would do away with that, and markets would likely quickly lose confidence in the central bank. As a result, inflation expectations would probably soar, and interest rates would follow.

A good example of this is what just happened in Turkey. President Erdogan replaced the central bank governor two days after he hiked interest rates to curb inflation (running at 16%) and the weakening currency. Erdogan has been repeatedly calling for lower interest rates. After replacing the central bank governor, the lira plunged to record lows. Simply put, the market lost confidence… quickly.

MMT supporters also say the bond market is not required to finance the government’s budget. But government bond markets are so big, the interest rates on those bonds provide market signals as to whether money growth is too fast or too slow, and whether inflation is too high or too low. As well, the interest rates on those bonds help set interest rates for business loans and mortgages. So, in today’s markets, they certainly serve several functions.

Gold and Silver: Enemies of MMT

There’s another consideration too. Gresham’s Law tells us that bad money drives out good. Some of you may remember or at least know that, prior to 1965, quarters and dimes in the U.S. contained 90% silver. The treasury did away with those because silver had become too valuable. Naturally, those coins disappeared from circulation as people hoarded, keeping them for their silver content.

While there’s no silver in our currency today, that doesn’t mean people aren’t aware that dollars are being rapidly debased. We only need to look at record high real estate prices, stock markets, and cryptocurrencies to see that people are anxious to trade dollars for assets that have value they feel can protect them from inflation.

And it’s why we’ve seen commodities, gold, and silver rise dramatically in the past year. It’s also why we’ve seen shortages, delivery delays, and huge premiums on coins and bullion bars at precious metals dealers. People are catching on, and they are trading their fiat currency for things of inherent value.

The way I see it, MMT is going to be popular with future governments as they come to see the potential of limitless spending on all their favorite pet projects. The masses, despite little understanding, will come to accept MMT as a great new economic paradigm that will allow them to get all the “goodies” that governments will be happy to provide, in return for votes.

In the end, it’s important for you to know MMT will only exacerbate and accelerate the overspending problems we have today. So now that you hopefully understand MMT a bit better, and how it’s supposed to work, you can see it with a more critical eye.

I call it Medieval Monetary Theory because there’s nothing new about it. Currencies have been massively debased for millennia; each time leading to detrimental outcomes.

In the Gold Resource Investor newsletter, I provide my outlook on which resource stocks offer the best prospects as this bull market progresses. I recently added a low-risk, deep value gold royalty company to the portfolio which I believe has exceptional potential to outperform its peers in the next 12 months.

Now’s the time to prepare for MMT’s inevitable effect of driving precious metals and commodities much, much higher.

Silver Enters Acceleration Phase

Spot silver is trading around $26 per ounce…but you can’t buy any at that price.

Instead, you’ll have to pay almost 50% more.

That’s right. If you want silver right now, you’ll need to pay at least $35 per ounce.

If you prefer government mint coins, and you’re willing to wait a month to get them, you’ll have to pay upwards of $37 per 1oz. coin.

In the past year premiums on physical silver have tripled from normal levels. Bullion dealers have been overwhelmed. Product shortages are now commonplace, with customers waiting 3 weeks or longer for shipping.

The silver market has rarely, if ever, experienced anything like this. Demand has not only soared; it has maintained these elevated levels.

So what’s changed? A lot. From social media attention and falling mine supply, to safe haven and industrial demand, the silver market is on fire. And most signs indicate this trend is only going to intensify.

Sustained Silver Tsunami

In late January, a Reddit WallStreetBets (WSB) subpost triggered a call to action to buy silver. Bullion dealers were immediately shocked by a tsunami of buying. To be fair, that’s happened before. But this time has been different, as the buying wave has yet to let up.

At the start of February Alessandro Soldati, CEO of Swiss dealer Gold Avenue said, “Demand was 10 times a typical Sunday yesterday, and today I would say six times…Everyone is calling us saying ‘I want to buy gold and silver ASAP.’” That echoed what numerous other dealers were experiencing.

Silver’s price spiked from $25 to $31 before subsiding. But demand for physical silver hasn’t. And it seems it’s unlikely to diminish for some time yet.

Although this has been a massive buying wave, silver demand actually first jumped back in March 2020 as the initial COVID-19 shocks caused much of the world’s economy to shut down. Since then, silver’s been hot, and by all accounts that seems likely to continue.

Silver gained an impressive 47% in 2020, and has been trending sideways for the past 9 months. But based on fundamentals and technicals, the metal appears set for strong gains again this year.

Elevated Investment and Industrial Demand

The Silver Institute (the Institute) recently forecast global silver demand would rise 11% in 2021, to reach 1.025 billion ounces. They argue that improving macroeconomics are supportive of silver’s main demand drivers.

Based on sustained robust buying over the past year, it’s not surprising the Institute expects physical demand will reach a six-year high of 257M ozs. Global silver ETP (exchange traded products) holdings were up an astounding 331M ozs. in 2020 alone, to reach 1.04 billion ounces. That’s more than an entire year’s supply of silver from mining, recycling and hedging. Then, from January 1 to February 3 this year alone, ETP holdings soared another 137.6 M ozs. to a new record 1.18 billion ounces.

As we can see from the following table, net physical investment was up 16% last year, after already gaining 12% in 2019. At the same time, mine supply has been falling steadily since 2015, dropping 5% in the last calendar year.

A recent analyst report from Heraeus Precious Metals said they foresee silver prices outperforming gold again this year, spurred on by rising inflation and burgeoning industrial demand as the economy recovers from the COVID-19 pandemic. The analysts said, “Consumption from industrial end-users is forecast to extend to a four-year high of 510 [million ounces] this year, with strong growth from the electrical & electronics and photovoltaic (PV) sectors.” They went on to say, “Last time the five-year breakeven inflation rate was this high was in 2011 and silver was trading around $48/oz, almost double the current price. With precious metals seen as an efficient hedge against inflation, higher inflation expectations should provide upside for silver.”

The Silver Institute also sees industrial demand to be sizeable, reaching a four-year high of 510M ozs., up 9% over 2020. They expect electrical and electronics demand to drive the increase, as 5G technology helps push the sector’s consumption to 300M ozs. The Institute sees gains from the PV (photovoltaic/solar) sector reaching 105M ozs., or about 10% of total demand. Solar panel manufacturers have gradually lessened the per unit silver consumption, but that has practical limits. According to S&P Global Platts Analytics, global installations of solar panels are forecast to grow 7% or roughly 8 GW/year into 2025, citing supportive government policy developments globally.

The Institute forecasts silver requirements from the automotive sector to be especially vigorous. With demand at 50M silver ounces in 2020, it’s expected to jump 80% to almost 90M ounces by 2025. EVs use 25-50 grams per vehicle: nearly double the silver requirements of internal combustion engine technology. Deloitte consulting sees EV sales accounting for nearly one third of all new vehicle sales by 2030.

In addition, printed circuit boards in electronics make up the largest single demand sector, at 30% of total demand (60% of industrial). There is currently a shortage of semi-conductors, exacerbated by the pandemic as demand has shifted towards TVs, home computers and game consoles. In effect, this pent-up demand can be seen as an opportunity as industry strives to meet it with silver supply.

Acceleration Has Begun

In previous precious metals bull markets silver has typically outpaced gold’s gains. I don’t expect this time will be different. And given the outsized gains silver produced last year, doubling gold’s return, we could well be on our way towards that outcome. The gold silver ratio may be the most telling indicator pointing to this scenario.

The gold silver ratio had been trending upwards since 2016, then rapidly peaked at an all-time record high near 125, marking a clear turning point.

From there the ratio fell rapidly and dramatically, as it was cut almost in half within just 12 months.

In my recent interview with silver expert David Morgan (The Morgan Report), we discuss this very topic in more detail, with David revealing just how low he expects the gold silver ratio could go.

Click here to watch the video

Although both gold and silver prices have risen since the ratio’s peak at 125, silver’s gains have clearly outpaced gold’s on nearly a 2 to 1 basis.

Bank of America’s commodity analysts said in a recent report that they see silver averaging near $30 this year. They cite an expected 281-million-ounce supply shortage and 9% higher industrial demand. And Goldman Sachs recently repeated its bullish view on silver, saying it projects the metal’s price to reach $33 per ounce, spurred by President Biden’s drive towards increasing renewable energy.

All these indicators – sky high premiums on silver coins and bars, demand forecasted to keep rising, and a rapidly falling gold silver ratio – are painting a very bullish picture for silver.

In the Silver Stock Investor newsletter, I provide my outlook on which silver stocks have the best prospects as this bull market progresses. Many offer 5x to 10x return potential as silver heats up.

I believe the silver bull market has entered the acceleration phase.

Wise investors definitely won’t want to be left behind. Now’s the ideal time to start buying silver equities.

For a look at all of today’s economic events, check out our economic calendar.

Gold Bottom

The short answer is… I think so.

That’s because, from a number of perspectives, that seems the most likely scenario. Right now most of the evidence points in that direction.

A dramatic rip higher from March to August last year caused gold to soar by 40% in just 5 months. It also allowed gold to establish a new nominal all-time record high at $2,070.

Since then gold’s been retracing, giving up about half of those gains. Two major drivers led to this: sentiment and the dollar. At this point, however, it seems both factors may have run their course, setting up gold and gold stocks for a new rally.

Let’s examine the current outlook to formulate what’s most likely ahead.

Negative Gold Sentiment Exhausted

Markets ebb and flow, and gold is certainly no exception. The dramatic rise last spring and summer was likely driven by fear as the impact of the COVID-19 pandemic was being assessed.

One of gold’s biggest attractions is obviously as a safe haven, a role it’s played for thousands of years. And last year was an excellent example. But as the world grew accustomed to its new reality, that meant other drivers took center stage.

It was also natural for gold to start ebbing. Naturally, large numbers of investors became enamored with gold and gold stocks as they chased them higher. That meant lots of buying near the early August peak. But that buying soon became exhausted.

Savvier investors then started to take profits while the late buyers eventually capitulated after buying high. Their lack of understanding, and lack of conviction, made them victims. It looks like that final capitulation happened in late March, as the sentiment pendulum swung to an extreme.

But fundamental drivers worked in conjunction with sentiment to help mark a turning point.

I have detailed before the effect of rising long term bond yields. Consider that the US 10-year Treasury yield bottomed at 0.51%, just two days before gold peaked. Since then the 10-year yield has soared, peaking on March 31 at 1.75%. That’s a 240% spike in yields. Massive global fiscal and monetary stimulus on a record scale caused investors to start pricing in much higher expected inflation.

This hurt gold prices in two ways. Higher yields compete with gold, which pays no yield. It also meant a higher US dollar index, as foreigners likely converted to dollars to buy those long-term bonds. Of course, a stronger dollar is a natural headwind for gold which is priced in dollars.

But as we can see in both previous charts, this upleg appears to have run its course. Prices have retreated, and momentum indicators suggest a recent peak.

And the action in gold prices is starting to look bullish for the first time in months.

Gold’s Technical Outlook is Positive

Technical action in the gold price is beginning to look bullish. We may have a double bottom, wherein the recent low established a bullish higher low. And both the RSI and MACD momentum indicators are rising, confirming the rising trend.

The action in gold stock prices is similar. Using the VanEck Vectors Gold Miners ETF (NYSE:GDX) as a proxy, we see several bullish signals. GDX has recently closed above its 50-day moving average and broke out above its falling trend channel. It too has established a higher low with rising buying volume. And both the RSI and MACD here are confirming upward momentum.

My upside price targets for GDX are $38.50 and $41.

And lastly the Gold Miners Bullish Percent Index (BPGDM) is also providing a bullish signal. This indicator is most bullish when it dips below 30 then reverses higher. And in the last week that’s exactly the signal it provided.

So given a likely reversal in sentiment, combined with positive price action in gold, gold miners, and their momentum indicators, odds are very good that we’ve seen the bottom for gold and we’re starting a new upleg in this sector.

Oh and one more thing. Gold stocks are cheap. The average stock in GDX trades at a P/E of just 20 and at less than 10 times cash flow. By comparison, the S&P 500 index currently trades at a P/E of 28 and over 16 times cash flow.

And according to U.S. Global Investors, gold producers had their most profitable year ever in 2020. The average profit per ounce mined was $828, which is well above the previous high in 2011 at $666. Part of this record profit level has been due to cost discipline.

Put it all together, and the indicators – sentiment, technical and fundamental – all point to higher gold and gold stocks over the near and medium term.

In the Gold Resource Investor newsletter, I provide my outlook on which stocks offer the best prospects as this bull market progresses. I recently added a low-risk, deep value gold royalty company to the portfolio which I believe has exceptional potential to outperform its peers in the next 12 months.

Of course, it’s impossible to know for certain that gold has bottomed. But given the outlook for this sector as I’ve just laid out, it makes sense to layer into gold positions over the next several weeks.

In all likeliness, those who do will be amply rewarded.

After all, it’s a gold bull market !

$100 Silver Ahead

That’s true even for us die-hard silver enthusiasts.

After all silver had a standout 2020, having gained about 47% in its best year since 2010. That easily outpaced gold’s own impressive 25% return.

But the reality is that so far in 2021, silver is down 9%. And meanwhile, nearly all the fundamental market drivers have remained intact. It seems the pressures on silver prices are likely from two angles. The first is after such an impressive 2020, it was due to correct. That’s what bull markets do.

The second pressure point is a rising US dollar index, likely thanks to rising long-term bond yields. However, it’s important to consider that this trend will also run its course and exhaust itself. That could happen naturally, or the Fed could intervene by imposing Yield Curve Control.

But higher yields are a sign of soaring inflation expectations and burgeoning economic activity. And a stronger US dollar, which favors imports over exports, is probably not a favored outcome for central planners.

So patience is the best approach at this point. In my view, the end of this silver correction is nigh.

Embrace Silver Volatility

In a recent report, Bank of America’s commodity analysts indicated they expect to see silver prices averaging $29.28 this year. That’s based on their expectation for a modest supply deficit of 281M ozs. They also point out, “While we expect a rebound in supply this year, output should remain below the peak levels seen a short while back, also because the project pipeline is relatively empty.”

The push for green energy combined with massive infrastructure spending, and stalwart investment demand, should keep a bid under the silver price and help it rise again this year.

Although silver is down 9% in 2021, and has retreated 19% since its August peak near $30, that’s certainly well within historical bull market corrections.

The point is silver corrections come with the territory. Investors need to embrace them, and use them to their advantage.

Between 2002 and 2006, silver dropped 10% or more 4 separate times.

Then, between 2006 and 2011, more short but sometimes deep corrections came, with silver dropping 13% or more three separate times.

The point is to look at what silver did after those corrections. In nearly every case, it went on to establish new bull market highs.

Now let’s look at what silver has done in multiple currencies.

20 Years of Worldwide Silver Gains

As you can see from the following chart, over the past 21 years silver has produced an average annual return between 8% (Swiss Franc) and 16.48% (Chinese Yuan). In USD, silver averaged 11.43% per year.

Of course, that came with considerable volatility as well as a number of down years. But the world average is 11.93% gains annually over the last two decades. So the overall trend is undeniably up: we’re in a silver bull market.

Now let’s zoom out for a longer-term perspective.

If we account for inflation, and that’s massively understated “official inflation”, then silver prices peaked at $120 in 1980 and around $57 in 2011. Today’s price near $24 is still well below those levels, suggesting a lot of upside remains ahead.

In fact at $24 today versus the inflation-adjusted $120 in 1980, silver is currently about 80% below that peak. And yet, current economic fundamentals like debt, deficits, spending, interest rates and supply/demand outlook are so much more bullish, that the 1980 $120 level is likely to be easily surpassed.

Looking at silver from a technical perspective, in my view we are either at or near a final bottom for this correction.

The $23 and $24 levels acted as support multiple times between late September and mid-December. I think any further weakness is likely to be limited near $23.

If you hold or you’ve been buying silver and/or silver stocks over the past several months, two approaches make the most sense to me right now. Either sit tight if you feel you have sufficient exposure to this sector, or gradually add to some of your positions if you feel they’ve simply gotten too cheap.

Investors should emphasize how to be properly positioned in this market, with balanced exposure to physical silver, silver producers and royalty/streamers, as well as silver developers and even high-octane junior silver explorers.

In the Silver Stock Investor newsletter, I provide my outlook on which silver stocks offer the best prospects as this bull market progresses. I recently added a junior explorer that’s up 40% in just eight weeks despite current weakness, with scores of others ripe for buying now.

It’s time to be a silver contrarian. History has rewarded us repeatedly.

$100 silver is well within reach.

Helicopter Money Vs. Gold

During his talk, he dissed bitcoin and cryptocurrencies saying they were “…highly volatile and therefore not really useful stores of value, and they’re not backed by anything.”

OK, let me get this straight.

At its latest FOMC meeting the Fed promised near-zero interest with no rate hikes until 2023, and its $120 billion monthly asset purchases see no sign of abating.

In the past year, the Fed has unleashed the largest multi-trillion-dollar quantitative easing fiat money campaign the world’s ever seen. And that’s saying a lot after its reaction to the 2008 financial crisis.

Where is this “money” coming from? These are trillions of currency units “not backed by anything”, which Powell himself wants to see lose value through higher inflation.

The COVID-19 pandemic has changed our world. Many of the existing structural problems, like easy money policies, record high corporate and personal debts, and national debts and deficits have ballooned to historical levels.

Trying to dial back these measures will prove not only futile, but likely impossible.

And this places gold in a perfect “sweet spot” to gain more favor, and continue on its historic bull run.

Gold Turnaround

It’s true gold has backed off from its new all time high of $2,067 to around $1,730 today. That’s about 19% below. Essentially, it’s a textbook correction.

Even after that, gold is still 44% higher than it was in late 2018.

But let’s look at a timeline of what happened a year ago for some perspective.

On Wednesday, March 11, 2020, the WHO declared COVID-19 a pandemic. Gold was at $1,640, near its then recent high of $1,690.

By early Monday, March 16th, under shock and panic, gold temporarily touched $1,450, then quickly regained $1,500.

The Federal Reserve had held multiple emergency meetings to that point in March as stock markets crashed.

On March 19th, President Trump announced details of an historic $1 trillion economic package. Congress was asked for $500 billion for direct payments to taxpayers. Stimulus checks of $1,200 per person were, in effect, economist Milton Friedman’s theoretical “Helicopter Money” tool, popularized by Ben Bernanke in 2002.

“Helicopter Money” was no longer just “theory”. It had moved from the lab to the real world.

On March 23rd, the Fed pledged a slew of programs to help markets function more smoothly. It promised unlimited quantitative easing through its asset purchase program. The Fed even moved, for the first time ever, into buying corporate bonds from primary and secondary markets through ETFs.

As well, the Fed also pledged $300 billion for main street business, the Term Asset-Backed Loan Facility, and to purchase agency commercial mortgage-backed securities.

This was, in effect, the start of QE Infinity.

So I ask, what do you expect of inflation?

Inflation “Baked in the Cake”

According to the U.S. Bureau of Labor Statistics, the CPI for All Urban Consumers was up 1.7% over the last 12 months. I say hogwash.

The most basic staples like food, building supplies, and energy have been soaring.

Which explains the more realistic rising inflation expectations.

Which in turn explains why the 10-year Treasury Yield has soared of late.

This has dented not just gold, but also stocks of all stripes. Meanwhile, the US dollar has risen along with yields.

So, as much as Powell may jawbone about resisting initiating a policy of Yield Curve Control, those limits may soon be tested.

Remember, right now these rates are competing with and therefore pressuring gold. I expect to see either a leveling off of longer-term rates, or a Fed reaction to cap them if deemed necessary.

That would likely cause renewed dollar weakness and a return to falling real negative interest rates. And this could be a catalyst to launch gold higher, potentially setting new all-time record highs.

As Jeff Clark of recently pointed out, there are multiple instances of large inflation spikes over very short time periods.

Once gold gets a whiff of this kind of action, it will likely be a major catalyst triggering a huge rally.

The Dow Jones Industrial Average took 8 months to reclaim its pre-March crash highs. Gold took just one month, then soared to a new all-time nominal high.

Investors should be preparing now for the inflationary effects of an abating pandemic and the release of massive pent-up demand on a majority of economic sectors.

In the Gold Resource Investor newsletter, I provide my outlook on which stocks offer the best prospects as this bull market progresses. I recently added a low-risk, deep value gold royalty company to the portfolio which I believe has exceptional potential to outperform its peers in the next 12 months.

Right now gold is simply pausing as we work through rising inflation expectations, and the implications that brings.

Odds strongly favor gold being much higher 12 months from now. This is the time to position in gold and gold stocks.

Commodity Comeback

But we all know that’s not how things always play out.

And that can be costly, even dangerous, for investors.

Take long-term bonds, for example. Ten-year Treasury yields have more than tripled, from 0.54% to 1.66% since last July. Does that mean the 40-year bond bull market is dead?

Tough to say, or course. We’ll only know that for sure with hindsight. You know… recency bias.

If nothing else, the bond market is telling us price inflation is becoming a thing again, notwithstanding what the Fed might be telegraphing.

According to the Consumer Price Index (CPI), the 12-month change in February was 1.7%. And yet, if you use electricity, gasoline, pay rent or even eat, chances are your experience has been quite different.

Energy, real estate, lumber, agriculturals, metals, and beyond are on fire since last March.

Is this the start of a new commodities supercycle? It’s certainly looking that way.

Signals Flashing Inflation

Like I said the bond market, for one, is catching serious sniffs of price inflation.

If I had to guess why, stimulus, money-printing, near-zero, and negative rates, plus massive pent-up post-Covid-19 demand would be top of mind.

Monetary growth has already far outpaced levels from the 1970s. And we know that inflation follows the money supply, often with a lag.

Money velocity has fallen steadily since the 2008-2009 financial crisis, but it’s absolutely plummeted since the start of the pandemic. Is that about to change in a dramatic way? Before you decide, remember recency bias.

Despite low money velocity, a funny thing has happened. Commodities have been soaring along with inflation expectations.

One of the best ways to know where a sector stands in the bigger picture is to compare it to other assets. And looking back over longer periods of time often provides great perspective. That’s why I absolutely love this next chart.

Commodities Rising

It’s the ratio between the Goldman Sachs Commodity Index and the S&P 500.

Looking back all the way to 1972, commodities have never been cheaper relative to the broad stock market. Never. The average of this ratio is 3.9 over 50 years. Today, it sits near 0.5. But it seems poised to soar.

For commodities just to make it back to their average levels versus stocks, they will need to rise by almost 700%. And remember, that’s the overall index, and it’s the underlying commodities. Needless to say, some commodities will outperform others. But the companies involved in producing those commodities will do even better as their profits leverage rising revenues.

The following table lays out the annual performances of a number of commodities.

As you can see, in 2020 nickel was up 19%, corn gained 25%, while palladium and copper both gained 26%. In a recent 2021 Commodities Outlook: REVing up a structural bull market (Nov. 18, 2020), Goldman Sachs said, “Looking at the 2020s, we believe that similar structural forces to those which drove commodities in the 2000s could be at play.”

A commodities supercycle is considered to be a multi-decade trend, where a wide range of basic resources enjoy rising prices thanks to a structural shift in in demand versus supply. Typically, what happens, is that supply stagnates or drops for several years as economic demand is itself weak or constant. However, at one point a new business cycle starts, and demand picks up, while supply is unable to immediately react.

Producing most commodities is a highly capital-intensive endeavour. That means a lot of money to build and ramp up production, not to mention the delays in finding, permitting, and building any new projects. Typical delays can be on the order of 10 years or more.

With supply unable to meet growing demand, prices rise. It’s Economics 101. So producers of those commodities enjoy higher revenues, and higher profits as their costs remain fixed or rise more slowly than the underlying commodity. And as profits expand, so do their share prices. You have a solid trend for years as supply struggles to catch up to demand. It’s a secular bull market.

What’s sowing the seeds for a new commodities supercycle? The drivers are numerous, which reinforces the probabilities. First we have a shift. In the above table, 12 of the 14 commodities ranked showed gains last year. In 2019, it was just 9. In 2018, just the top 3 commodities eked out a gain. Then we have all the usual suspects: near zero interest rates and bond-buying from central banks, massive government spending and deficits, ongoing printing to increase the money supply exponentially, stimulus cheques being given to the majority of the population, huge infrastructure, green energy, and Covid-19 fighting and relief spending.

Oh, and possibly a long term bear market in the U.S. dollar, in which commodities are priced. Plus all the pent up demand from people unable to go out and spend due to pandemic restrictions. I believe the large gains in base metals and energy over the past year are the markets sensing that a flood of consumption and inflation are coming our way.

And Goldman Sachs is not alone. Bank of America has also forecast a surge in commodity prices as a result of post-pandemic global economic recovery. JPMorgan said in a recent note that metal, energy and agricultural prices are reaching multi-year highs, signaling a commodity supercycle that may last for several years.

I agree. That’s why it’s time to position for a new commodities supercyle.

In the Gold Resource Investor newsletter, I provide my outlook on which stocks offer the best prospects as this bull market progresses. I recently added a low-risk commodities royalty company to the portfolio which I believe has exceptional potential to outperform its peers in the next 12 months.

The action in commodities looks and quacks like a duck.

Don’t be a victim of recency bias.

Be A “Silver Hodler”

I think silver has entered its rock star period. And it’s about to generate a string of hits. They won’t be back-to-back, but they will be regular, with each subsequent one outdoing the previous.

You know what that means. I’m talking about an eventual new record all-time nominal high, followed by still more new records.

That probably feels pretty far off right now. But it’s likely to arrive sooner than most expect. When it happens, many will say it’s unsustainable. They’ll say silver will crash any day. And that’s okay…for them.

Like bitcoiners, those who really understand will become the new “silver hodlers”, and they will profit the most. If the recent silver rout has you worried, then a little perspective should help put your mind at ease.

After all, silver’s in a long-term bull market. And those never go straight up. The great thing is, this one is still very young.

Silver In The Rearview Mirror

Silver bottomed at $13.50 back in early 2016. In typical silver fashion it rose in spurts, then corrected and moved sideways. By September 2019 it had reached $18.50 for a 37% gain, or about a 10% annual average return. Not bad, despite the volatility.

Then the Covid-19 crisis hit, and silver crashed to $11.75 within a month. It was a temporary blip. The metal then zoomed to $30 in under 5 months. It’s now been 7 months since, and silver is currently around $26.

If silver was going to crash, it would have done so by now, and we’d be back near $18. Instead, the metal’s been rangebound.

The way silver has been behaving is pretty much par for the course. Silver investors need to expect more of it, not less. When the gold to silver ratio peaked at an all-time record high near 125 last March, it appears to have marked a turning point.

What we see is silver corrected harder than gold in the initial selloff, but then rapidly caught a bid. In the last part of that July rally, silver powered ahead and detached from gold.

Since then silver has moved sideways in a wide range between about $23 and $28, while gold has been grinding slowly downwards.

We can clearly see this price action reflected in the gold silver ratio, which had a waterfall drop from mid-July to early August, when both metals peaked.

What happened? I think it was during this period when silver’s dual roles as monetary and industrial metal asserted itself.

Stimulus, More Stimulus, and Even More Stimulus

If you think about it, that was when the world’s major governments and central banks went on a global, coordinated printing and spending spree. Within just the first two months, McKinsey & Co. says over $10 trillion in quantitative easing and stimulus had been announced.

As this chart demonstrates, about 70% of the world’s workers received some sort of income support. According to the International Monetary Fund (IMF), real global GDP shrank by some -3.5% in 2020.

Since then an endless stream of additional support and infrastructure programs have also been announced. The U.S. alone has just passed a $1.9 trillion Covid-19 relief bill. In addition, Biden is planning a $2 trillion plan to help rebuild and expand infrastructure, upgrade power and communication networks, and support and foster renewable energy and green transportation. Similar plans have been announced across numerous developing and developed nations alike.

Silver is sensing this paradigm shift. On one hand, it’s reacting to the flood of fiat money that will be hitting our economies for the foreseeable future. It’s why worldwide holdings in ETFs jumped by 331 million ounces last year to reach 1.04 billion ounces, which is more than an entire year’s supply. The Silver Institute recently said it expects physical silver investment to reach a six-year high of 257 million ounces.

On the other hand, silver is reacting to the raw demand that’s filling its pipeline. That’s why we’ve seen the Silver Institute forecast global silver demand to rise by 11% in 2021 to reach an eight-year high. They see industrial demand reaching a four-year high of 510 million ounces, increasing by 9% over 2020, with electrical and electronics contributing the most gains. The accelerating rollout of 5G technology is expected to lead the push.

The PV sector mounted a healthy recovery in the latter part of 2020, and that should maintain a healthy pace this year and beyond. Although solar panel manufacturers are pushing to lower each panel’s silver requirements, there are physical limits to this. Meanwhile, solar energy is catching on at an accelerating pace globally. And the Silver Institute sees the automotive market, with rapid EV adoption, growing by 50% from 60 million silver ounces to 90 million within just 5 years.

So you may be watching silver prices and wondering when silver will finally bottom and resume its uptrend. The truth is no one knows for sure; it may well have already happened.

Instead, investors should emphasize how to be properly positioned in this market, with balanced exposure to physical silver, silver producers and royalty/streamers, as well as silver developers and even high-octane junior silver explorers.

In the Silver Stock Investor newsletter, I provide my outlook on which silver stocks offer the best prospects as this bull market progresses. I recently added a primary silver producer to the portfolio which has gained nearly 10% in just six weeks, and a junior explorer that’s already ahead 25%, despite recent weakness.

Those who have the benefit and conviction of understanding the silver market will reap the biggest rewards.

Don’t let volatility shake you out. It’s time to be a “silver hodler”.

Disclosure: I am long PSLV and PHYS

Gold: Crisis or Opportunity?

If you’re a serious gold investor, then I sympathize.

If you’re freaking out, then this is not for you. If you’re anxious, then you need to check your premises.

After all, what’s changed since gold reached a new all-time nominal high over $2,000 last August?

Actually, most of the fundamental drivers that support gold have simply gotten more entrenched. And that ultimately means much, much higher gold prices over the next few years.

So the current rout becomes a matter of perspective. After all, we’ve set a lot of records lately…in a bad way. Unless you think record levels of debt, record low interest rates, record high stock valuations, and record levels of money supply will hurt gold prices, then relax.

In the meantime, it’s helpful to just try and better understand what’s pressuring gold. That way we can decide if its weakness is transitory, or structural.

Odds are you know where this is going. But let’s work through it anyways, you know, for fun.

Rising Yields, Deficits and Debts

My take on what’s been pressuring gold for the last few months boils down to one main factor, the rise in long-term yields.

Bond yields have been on a path higher since early August. It’s no coincidence that gold started to correct at virtually the same time. Gold pays no dividends. And investors have become attracted to higher bond yields as stocks have gotten even more pricey.

Intertwined with that is the rising US dollar. As the rise in yields accelerated when we entered 2021, foreigners likely began converting their currencies to dollars to buy US bonds. That has prompted a rally in the US dollar index which could have a bit higher to go before peaking.

Judging by the RSI and MACD momentum indicators, the Ten Year Treasury Index is looking overbought. And the 1.5% ten-year yield level, which acted as support several times in late 2019, may now become resistance.

Meanwhile, US deficits are screaming higher. As explained in Crescat Capital’s February Research Letter, there’s an impending $1.9 trillion “rescue” package. In addition, Biden is aiming for a “recovery” package. While still in discussions, it may reach as much as $3 trillion. The total could reach $4.9 trillion, as compared to last year’s $3.1 trillion. And last year major foreign holders of US debt bought a measly 5.2% of all treasuries issued.

That leaves the Fed as a buyer of last resort, naturally. Let’s look at what that’s meant for more than the past decade.

One big standout, for me, from this chart is how short-lived and relatively shallow any asset reductions were. The most obvious takeaway, naturally, is the sheer amount of growth in assets. Over the 12 short years from 2008 to 2020, assets have blasted from $1 trillion to $7 trillion.

Now lets’ step back for a little golden perspective.

Gold’s and Gold Stocks’ Big Picture

If we look at a 20-year gold chart, the recent correction takes on a different context.

Consider that gold’s big upleg from late 2018 until its 2020 peak took it from $1,175 to $2,070. That’s a 76% gain in just two years. And it certainly justifies its current correction.

Looking at a 2-year chart suggests gold’s correction may be nearly done.

Last April to June there was a confluence of trading in the current range around $1700 – $1,750. And the RSI and MACD indicators suggest gold is at or very near oversold levels.

From price and sentiment perspectives, gold stocks also look like they’re near their nadir.

The bottom for GDX could well sit near the $30 level. The RSI suggests a little more work needs to be done.

And from a contrarian sentiment perspective gold stocks have only been this hated, and therefore attractive, twice in the past decade.

In the Gold Resource Investor newsletter, I provide my outlook on which gold stocks offer the best prospects as this bull market progresses. I recently added two companies to the portfolio which I believe have exceptional potential to outperform their peers in the next 12 months.

So the bottom line is that gold at $1,700 is not a reason to freak out. Instead, it needs to been seen for the opportunity that it is. In all likeliness, after eight months of correcting by nearly 18%, we are at or near a bottom.

It’s time for you to decide. Is the current gold price a crisis or an opportunity?

Logic would dictate the latter.