Silver: Is This Short Squeeze For Real?

Fundamental

The fundamentals for precious metals are highly favorable. Yesterday Fed Reserve Governor Powell said they are going to leave interest rates as is and that they have no intention of raising rates any time soon. They can’t afford to raise rates. We are going to see low rates for a long time. It's creating the economic boom in real estate, with rates so low. The cost of money is the cheapest we have ever seen. If you qualify, this is a great time to buy a home in terms of the cost of borrowing money. There's a risk, of course. The economic stimulus will have an inflationary effect on the economy. We already are seeing inflation in food prices. Wholesale food prices have increased more than 54%. The supply issues caused by lockdowns will only increase costs for food and other commodities.

We are likely to see massive amounts of stimulus coming into the market. Last March the Feds and the Treasury looked at putting 10% of GDP or $24 trillion into stimulus spending. We appear to be heading that way toward that staggering amount of money. We are still far from recovered from the pandemic.

Massive stimulus is like a put for the market, guaranteeing that the Fed will be there if any systemic risk arises. However, the stimulus is not bullish for the US dollar. It decreases the value of the dollar and its clout as the world’s reserve currency. We are basically exporting our inflation to the world via the US dollar. The Fed wants to ensure we don’t run low on dollars, as we did in 2008. Now cheap money is fueling the stock market. We are not likely to see the kind of implosion we saw in March. There's tremendous cheap money available and the markets appear to have taken a bullish view of the future. The free money appears to be going to the stock market and safe havens, such as the dollar, short term.

The E-mini S&P reversion appears to have been completed yesterday. 3703 was the low and the weekly Buy 1 and daily bullish trend momentum were activated. Free money continues to pour into the stock market. It will find its way into precious metals soon.

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Disclosure: I am/we are long SLV. I wrote this article myself, and it expresses my own opinions.

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