When Will Silver & Juniors Lead?

It has been a heck of a run for Gold since the Federal Reserve shifted policy. 

Before the Fed’s last rate hike in December 2018, Gold was trading around $1200/oz. Since then it has climbed nearly $500/oz or roughly 40%. It broke out to a 6-year high and has made many all-time highs against most global currencies.

Yet, since that period, Silver is barely up more than 20% while GDXJ and GOEX (explorers) have gained only the same amount as Gold.

The catalyst for bull markets in precious metals is essentially Fed rate cuts or rising inflation and inflation expectations. The former tends to benefit Gold, gold producers, and gold royalty companies while the latter will spark outperformance in Silver and the juniors.

Fed rate cuts, economic weakness, and the like have driven the recent strength in the sector, and these factors are most bullish (in relative terms) for Gold, gold producers, and gold royalty companies. 

Hence, Silver and the juniors often lag the start of bull markets until inflation or at least rising inflation expectations kick in. 

As far as trying to time the future outperformance from Silver and the juniors, here are some essential things to keep an eye on.

First, keep an eye on inflation expectations, which given how markets are trading Sunday night, may bottom out this coming week or soon after.

We plot various inflation indicators in the chart below. 

Note that inflation expectations were rising after mid-2016 through most of 2018. However, precious metals (and Silver) did not perform during this period because the Fed was hiking rates, which kept a floor under real interest rates.

Measures of Inflation Expectations

Let’s circle back to 2008 and check how markets and ratios performed during that major panic.

The precious metals complex bottomed in late October. Gold against the S&P 500 and Gold against the Euro (not shown) bottomed in September. 

Most indicators of inflation expectations bottomed in late December. 

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