The Silver Bull Is Not Transitory

Transitory. That’s something we’ve been hearing a lot lately.

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 a 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.

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