It’s Mid-summer, It’s Hot, and Silver Is on Fire!

In the first half of this year, silver had the highest return of all major global financial assets, gaining about 22%. It’s impressive, but not shocking. At least…not to me.

Silver’s been so undervalued and underpriced for so long, the reversion to the mean had to start happening. That inflection point came in late February.

I was recently asked what finally made silver move. I think the answer has three parts. First, it got a strong signal from gold which has been resilient due to central bank buying over the past two years. Second, the market realized just how underpriced silver has been versus other assets. And third, the structural deficit in the silver market, in large part due to solar demand, is finally being recognized.

My discussion with SmallCapInterviews helps to understand the fundamental case for higher silver: Peter Krauth / SmallCapInterviews

These three factors pushed silver from $22 in February to a $32 peak in May. Silver prices then dialed back to $29 in late June and have rallied recently to $31. That’s very bullish, but I’m not sure it will be sustained. My sense is that we may need to see silver spend a little more time with negative sentiment before it hits a near term bottom.

A look at silver seasonality helps to analyze what causes silver price behaviour in a typical year. Those drivers suggest we just might get a counter-trend pullback in the very near term. Technical price charts point to action similar to what happened in gold and gold stocks around this time last year. The bottom line is, if I’m right, we could be setting up for the next tremendous buying opportunity in silver and silver stocks quite soon.

The outlook remains bright for precious metals as safe havens. Given the banking sector’s risk mitigation shortfalls, precious metals are looking more crucial to own than ever.

Banking regulators in the US (the Fed and FDIC) recently said “living wills” – plans for unwinding massive derivatives portfolios in the event of distress or failure – were inadequate for Citigroup, JPMorgan Chase, Goldman Sachs, and Bank of America in recent stress tests. When the banks’ ability to unwind derivatives portfolios using different inputs than the ones the banks chose, they came up short. All four “too big to fail” banks had shortcomings, according to both regulators. Not reassuring.

Meanwhile, the jobs report for June, the “nonfarm payrolls”, shows unemployment is rising for the third straight month. A year ago, it was 3.5%. In June it was 4.1%. When asked recently, Powell said he thought a year from now inflation would still be somewhere between 2% and 2.5% for the personal consumption expenditures (PCE) index. We’re currently around 2.6%, so clearly the Fed isn’t expecting their fight against inflation to make much additional headway.

Despite that, official inflation in the US for June dropped slightly. The CPI fell in June by -0.1% after May was flat at 0.0%.

When you strip out food and gas, June prices actually climbed 0.1% over May, and 3.3% over the past year. Still, this was the first negative month-over-month reading since May 2020. This clearly helps provide cover for the Fed to potentially cut rates in September. It also caused both gold and silver to pop on the news, pulling gold above $2,400 and silver to $31.50.

As for the average citizen, the inflation outlook is decidedly higher than the Fed’s “official” outlook.

As this chart shows, long-term inflation expectations have soared over the last four years. In fact, those consumers recently surveyed expect inflation at 5.3% over the next 5-10 years, the highest in the last 25 years, by a long shot!

And yet the markets are pricing in a Fed rate cut by September. Even just one cut could juice markets, and spur inflation further as financial conditions begin easing. That would also set up precious metals for more strength as inflation stays elevated while short-term rates fall.

Amongst the Silver Stock Portfolio holdings, o

ne top notch silver explorer with a monster silver deposit is spinning out its royalty portfolio to shareholders and planning to list this new company next month. That’s a tremendous boon to existing shareholders, who are likely to see the royalties from this “bonus” become more fairly valued by the market. And as the spinout will soon be listed, everyone else will be able to buy the new royalty company post IPO.

I talk about these topics, like silver seasonality and attractiveness of the royalty business model, in my book The Great Silver Bull. These are just two of the numerous subjects I cover to help readers better understand the quirks that are particular to the silver market.

If you haven’t picked up a copy of the book yet, it’s easy.

CLICK HERE to order The Great Silver Bull

To recap, silver’s done exceedingly well so far this year. I think it needs to “digest” those gains a little longer before it will resume its climb higher.

Silver stocks have managed to generate impressive returns, but really are still in the first inning of this precious metals bull market.

Unemployment is rising notably, inflation expectations are at multi-decade highs, and a rate cut could come soon.

It’s an ideal setup for precious metals. In my view silver is primed for a tremendous performance.

Accumulating silver and silver stocks is looking like a wise move.

I will buy stocks I see as undervalued by nibbling away on weakness and building my positions.

Peter Krauth,

Publisher, www.SilverStockInvestor.com