Silver Leading The Way Up

This is similar to what happened in March 2020 when gold imploded from $1700 to $1450 in about 30 days. The Fed then announced that they would provide unlimited amounts of quantitative easing. They allocated 10% of GDP for such efforts. The market discounted this and assumed that all of the stimulus would be highly inflationary for the US dollar.

We have been exporting inflation to the world since 1971, when we went off the gold standard. This rally that we saw in gold anticipated the potential damage that we are going to see. We are seeing an ongoing battle between the US dollar and gold. Since 1971, gold saw $2089 traded from $35 an ounce, which was the benchmark price back to Roosevelt.

Since 1971, the US dollar has collapsed more than 90% in value against gold. Gold hit $1900 in 2011 and since then paper short selling has kept gold down in price, which props up the US dollar. The Commitment of Traders reports have shown how those shorting the market have written more than 10 times the short paper contracts than are available in the physical market.

Gold and silver are reaching the point where they are about to explode. We are running out of silver supplies, especially for industrial uses. In March, we were low on supplies and the physical market included about a $80 premium for gold and silver over the paper price. In the past, the futures market led the way in price. The physical market is headquartered in London, while the paper market is in New York (COMEX). The Commitment of Traders shows that there are still massive short paper positions in precious metals, in excess of $38 billion, which has kept the price down.

The current environment is similar to the 1970's, when we saw interest rates hit 14% and gold rallied from $130 up to $800 or $900 in 1981. Interest rates can go up as high as the price of gold in an inflationary environment, which is where we are heading. Food and energy, if added to inflation rates, means that inflation is already running at about 10%. The Fed argues that such an effect will be temporary. The government does not include food and energy prices in their inflation rate, which is a way to hide the real inflation rate.

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Disclosure: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned ...

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