EDITOR'S NOTE: We only partially agree with the author’s thesis below. The notion that gold and silver rise during periods of inflation may be true, but the movement is not as immediate nor is it as robust as most people would expect. It’s when the public loses confidence in the Federal Reserve that both metals tend to pick up steam. Inflation has been rising for quite some time. Not only is it occupying decade highs, the latest wholesale price report indicates that consumer prices still have a ways to go in the coming months. Meanwhile, the Fed is beginning to lose its credibility among mainstream investors. Its forecasts and measures have been unsurprisingly flawed. And the public is no longer certain whether it has the tools to get prices back under control. This is the potential trigger point for silver and gold to begin a robust move upwards. And given that both metals are hovering slightly above their recent lows, this may be the ideal time to head toward safety in “sound money.”
Last Friday markets were shocked by the latest inflation print showing that inflation in the US was continuing to track higher. Investors are now growing more and more concerned that inflation may be here to stay like it did in the 70s when inflation averaged over 7% for a decade. The greatest inflationary pressures have been seen across essential items like food, transportation, and housing. In a high inflationary environment, gold and silver prices tend to gain. So, will silver move higher over the next few weeks on inflationary fears encouraging commodity buying?
Silver has a strong period ahead from June 24 through to September 04. Over the last 15 years, prices have gained nine times and fallen six times. The largest gain has been a huge 54.34% and the average gain has been 6.74%. Will silver shine again this summer?
Major trade risks: If the Fed hikes more aggressively than the market is expecting that could result in some near-term pressure to the downside in silver with a strong USD. However, be aware that the normal yield, and USD, the correlation may break down.
Source: FX Street
Originally published on FX Street.