Monday , 26 October 2020


Silver: What’s Going To Push It Higher – and When?

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How have silver & gold performed during past stock market crashes and major hits to economic activity?

1. How have gold & silver prices performed during past stock market crashes?

First, here’s how both gold and silver prices have performed during the eight biggest stock market crashes before this one. Green means it was a positive return, yellow means it fell but less than the S&P 500, and red means it fell more than stocks.

Gold & Silver During Stock Market Crashes

Gold

You can see from the above table that gold rose in every instance but two, with one of those declines less than the S&P 500. We should also point out that the 1980-1982 period was right after gold’s biggest bull market in recorded history so the selloff wasn’t exactly surprising. Overall, a pretty good track record.

Silver

For silver, however, it was almost the opposite. Over the past 45 years, it has risen in only two of the biggest stock market crashes (one of which was only 1%), and fallen in all the others. It did fall less than the S&P 500 in five of those instances, but more in two of them.

This above data suggests that in the throes of a stock market crash, a decline in the silver price is historically normal behavior, even though it’s usually less than the S&P 500.

2. How have gold & silver prices performed during past economic recessions?

…While we haven’t officially entered a recession it’s clear one is on the way and the chart below shows how silver has performed during the past seven recessions in the U.S., going back 50+ years.

silver usually weak during recessions

In the last seven recessions, the silver price fell in five of them, and rose in two. The range in returns has been wide, including some gains, but overall silver has not logged a strong track record during recessionary periods.

[The performance of silver which] is in stark contrast to gold.

gold usually positive during recessions

Gold has risen in five of the past seven recession and in the two it fell, the decline was only by single digits.

The above data specifically tells us that silver is not highly responsive to a stock market crash or a recession but this isn’t terribly surprising. In 2019, 81% of silver supply went to non-monetary uses—industrial, jewelry, silverware, solar, etc. If economic activity declines, demand for these uses, for the most part, would also decline. If investors are scared by a crash in stocks or the onset of a recession, they tend to flee to gold first. In other words, silver’s recent price behavior, based on the last 50 years of history, is normal.

What’s going to push silver higher – and when?

There are a lot of potential catalysts, but three stick out:

#1: A Rise in Inflation

Inflation isn’t on the radar of most investors right now, but given the extent of currency abuse, especially the Fed’s public admission that QE is “unlimited and open-ended,” it seems unwise to assume inflation isn’t a future reality and it could get here sooner, and soar higher, than many think.

Silver’s two biggest modern-day rises have occurred during inflationary environments: the runaway inflation of the 1970s, and when investors feared  inflation during the Great Recession.

Here’s how much silver rose during those periods, plus what the silver price would reach if we matched them from today’s $15 level:

silver gains applied to today

Based on the massive amount of currency abuse underway and the inflation that is likely to result, prices in this range seem not just realistic but likely.

#2: A Long Fuse

This isn’t a catalyst, per se, but it’s a fact worth revisiting: silver historically has a longer fuse to ignition than gold…

In the five precious metals bull markets in modern history, silver typically lags gold—then catches up and passes it – and this is yet more evidence that silver’s current price behavior is historically normal.

silver trailed gold then outperformed it in most bull markets

The reason for this is again because investors turn first to gold in the initial shock of a crisis. It’s the reflexive go-to asset when fear and uncertainty strike. As gold becomes more “expensive” investors then turn to silver.

Silver hasn’t entered that “catch-up” phase yet, so let’s insert the current price into the 1976-1980 bull market and see where we might stand in historical context.

Silver bottomed last month at $12.005 per ounce (based on the London PM fix). It has since risen 27% as I write—here’s where that 27% rise would be situated in the 1970s bull market.

silver 1976 to 1980: big gains came at the end

The arrow points to the same percentage rise we have now as when it was first seen in the 1970s bull market. It took another year for the price to really get going, but once it did, the returns were spectacular…

The Silver Institute just released their report on 2019, and among other things concluded that “silver will outperform gold later this year.” They think the “catch-up” phase starts before 2020 is over.

History says the silver surge is coming. It means we should hold on and make sure we have the amount of metal we want.

The next catalyst is probably the biggest of them all…

#3: Real-World Effects of Monetary Destruction

…While we’re currently in the middle of a huge deflationary dip, what comes next is big inflation (maybe even hyperinflation). This deflationary period could last another year or two, but inflation will come at a point when the government has sent people enough cash to where they feel like they can go out and spend again – and…when the real-world effects of this massive currency destruction begin to set in, the rush to silver (and gold) is likely to be enormous…

The above article is an edited ([ ]) and abridged (…) version of the original article by Jeff Clark, to ensure a fast and easy read.
Editor’s Note: The author’s views and conclusions in the above version of the original article are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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