Silver / Long Idea Ever since the Lehman Brothers collapse prompted central banks to cut interest rates and implement round after round of “quantitative easing” commentators have been forecasting that gold will hit $5,000 an ounce and silver $100 an ounce.
Pointing to the high inflation that was experienced in the US in the 1970’s that caused gold and silver to skyrocket back then, many are drawing parallels stating that all of this quantitative easing will end with a similar high inflation environment. If and when this does materialize, precious metals are expected to rise exponentially.
However, the question of “when” this will occur is currently up for debate. While there have been some recent signs of inflation, it yet remains to be seen whether we have truly entered an inflationary environment or whether this just a temporary blip brought on by the shock to the supply chain caused by the Coronavirus.
As we all remember far too well, by April 2020 most of the worlds factories had been forced to shutdown due to the spread of COVID. When certain factories deemed to be crucial for “essential businesses” were allowed to be re-opened, many of them re-opened on a drastically reduced capacity based on the expectation that consumers would shut their wallets and not be spending money.
However, the complete opposite happened. Those that were fortunate enough to maintain employment could not spend their discretionary income on travel and entertainment so directed their money towards home renovation projects which were also bolstered by record low mortgage interest rates.
This contributed to record high prices for Lumber in the US and manufacturers such as Stanley Black and Decker being caught flat footed by cutting back production only to learn later that consumer demand for tools and equipment was exceptionally high.
While the above had lead to inflation, it is yet to be seen when manufacturing capacity returns to normal, and consumers can spend money again on travel and entertainment, is this inflation temporary or is it just the spark that has lit the inflationary fuse.
It may however be many years before the inflation that has been warned about for the last thirteen years begins to materialize. And while gold is arguably the most popular precious metal, it needs the inflationary narrative to continue for the price of gold to appreciate.
To position ourselves accordingly, I am choosing Silver to protect My portfolio from inflation if and when inflation does come screaming back but also choose a precious metal that can capitalize on a post-covid economic recovery.
Good Luck
