Stefan Gleason Blog | Why Isn’t Retail Demand For Silver Pushing Up Prices? | Talkmarkets - Page 2
President at Money Metals Exchange
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Gleason is president of Money Metals Exchange, a national precious metals investment company and news service with over 450,000 readers, 35,000 paid customers, and $120 million in annual sales. He launched the company while president of a national newsletter publishing ... more

Why Isn’t Retail Demand For Silver Pushing Up Prices?

Date: Friday, February 19, 2021 1:31 PM EDT

 

 

For now, Federal Reserve officials and most mainstream economists are brushing off the recent spike in prices as transitory. Some rebound was inevitable off the virus lockdown lows of last year.

 

But there is good reason to believe the inflation upswing has further to run. Another round of government stimulus may soon hit the economy. And of course, the recent rise in inflation will do nothing to deter the Fed from its easing agenda.

 

The question many investors may be rightly asking is why gold prices are sagging. After all, isn’t the monetary metal supposed to be an inflation hedge?

 

Of course, in the very long term, gold prices do reflect the inverse of currency depreciation. But gold also functions as a safe haven during times of stress in financial markets. Lately, markets have been fueled by extreme optimism toward an economic recovery – helping lift most industrial commodities in the process.

 

So far, the rise in inflation has been greeted enthusiastically by equity investors. It means deflation is no longer a threat.  

 

The gold trade tends to take off during times of fear. When investors begin to fear an overshoot of inflation, rising interest rates, or other threats to stock valuations, they will find precious metals more attractive to hold.

 

During the severe inflation and economic stagnation of the late 1970s, gold and silver vastly outperformed the stock market.

 

Of course, every economic cycle is different and unique. Today, gold and silver also face enormous price suppression campaigns by institutional short sellers. The concentrated short position in silver in particular exceeds that of just about any other commodity on the planet.

 

Yet we know the manipulated paper markets for precious metals don’t fully reflect the dynamics of physical supply and demand. Despite the spot price of silver being contained, demand for bullion products in recent weeks has gone through the roof.

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