EDITOR NOTE: Silver may be quite the volatile investment, but for investors willing to stomach the ride, the white metal can rise by 138% within the year, according to Jon Deane, ex-JP Morgan managing director and now CEO of Trovio. With silver, you have the supply shortage angle along with the climate change theme--not surprising, as silver has both monetary value and industrial applications. And based on the physical silver and gold purchases from investors to manufacturers, demand is soaring. The Covid pandemic was a catalyst not only for inflation but for certain political interests like climate change that support silver. The sharp rise in 10-year yields is showing strong signs of inflation expectations. And now, under Biden’s administration and strong Democratic presence in Congress, the green agenda is well underway. Although this may spell disaster for the economy, it’s a real boon for the white metal’s long-term prospects, which makes non-CUSIP silver the smartest investment to hold.
Signs of inflation are already here, and the best trade in the short-term is silver, said ex-JP Morgan managing director and now CEO of Trovio, Jon Deane.
After receiving a wave of retail attention earlier this year and briefly trading above $30 an ounce, silver's mainstream media coverage is fading. But keen investors are still buying up the physical metal, which is a sign that the physical silver squeeze is far from over, according to Deane.
"Short-term, silver is your best trade. There is a lack of silver around the world. There is not much silver at any refineries and getting your hands on physical silver is still difficult. There is a risk of a real silver squeeze this year," Deane told Kitco News.
This year, silver is also a good leverage play on gold considering the supply issues as well as the climate change angle, which is why the precious metal is likely to outperform gold this year.
Deane does not rule out silver hitting $60 sometime this year. "Silver could trade $40-$50 and potentially $60 this year," he said.
At the time of writing, March Comex silver futures were trading at $26.69, up 0.18% on the day.
It is important to remember that silver is a highly volatile metal, and even if it does reach $60 this year, it doesn't mean it will end the year there. "It is a sporadic, high volume trade. This is just a prediction on where it might trade this year rather than where it will end 2021," Deane said.
Advice on how best to invest, Deane said to own physical. "Owning physical or SLV is how I would do it."
When it comes to gold, Deane still sees new highs this year, with the range varying from mid-to-low $2,000 to $2,200. At the time of writing, April Comex gold futures were trading at $1,735.50, up 0.73% on the day.
Other solid performers for this year include iron ore, aluminum, and copper. "Copper is a very good benchmark for China," he said.
Going forward, the approach to COVID will be based on a nation-to-nation basis, which would create travel bubbles and could trigger further supply-chain problems for the metals, Deane added.
'Monetary policy is broken'
The catalyst that will finally boost silver and gold substantially higher this year is a weaker U.S. dollar. This could happen later in the year if the economic recovery slows and inflation continues to rise.
"Silver and gold need a weaker dollar," Deane said. "If we see deteriorating economic conditions while inflation continues to move higher, the Fed wouldn't be able to move rates higher. And by leaving rates low and inflation high, we could get a much weaker dollar and much higher metals prices."
The COVID-19 pandemic was a catalyst for inflation as it accelerated the amount of debt that the governments around the world had created.
"Before the pandemic, we already had low interest rates around the world. When the pandemic hit, and we got severe economic conditions, it accelerated monetary policy to zero. When you have such a large debt burden, it is difficult to raise rates again. How do you raise rates when you are trying to stimulate the economy?" Deane said. "Monetary policy is broken. It is no longer effective."
The markets are already sensing signs of trouble as investors digest the sharp rise in the U.S. 10-year Treasury yields, Deane pointed out.
"The U.S. government will struggle to use monetary policy. We are already in a scenario where we see high unemployment. When stimulus dries up, things will get worse," he said. "At the same time, more money coming into the economy now is inflationary. We are starting to see asset price inflation."
Another new development to watch this year is the de-centralized way new investors are educating themselves. "This is going to become more prevalent in the years to come," Deane noted. "We've got a lot of retail hunters sitting at home and trading. People are doing more homework now and seeing which asset classes are underpriced."
Originally posted on Kitco