EDITOR NOTE: Silver offers investors a unique opportunity for low-cost inflation protection. On one hand, it has significantly outperformed gold year to date, rising 49.7% since January compared to the yellow metal’s 27.6%. On the other hand, while gold is currently hovering in record-high territory, silver is still $20 below its 2011 high. As real interest rates sink closer to (or below) zero, and as the Fed aims to stimulate inflation to an average of 2%, precious metals will benefit from this environment--and silver, providing the lower-cost opportunity, may benefit the most as it still is, by historical standards, quite cheap, even at its current levels.
It's not just gold investors who should be paying attention to potential rising inflation pressures as one market analyst notes that silver could rise to all-time highs as real interest rates push further into negative territory.
In a report published Monday, Jonathan Butler, precious metals analysts and head of business development at Mitsubishi, said that silver prices rallied 14% in August as rising inflation pressures pushed real interest rates to below negative 1%.
“In the period since real interest rates went negative at the start of the pandemic in March, silver prices have risen from $14 to highs of $29.86 – an increase of 113%,” he said.
Gold, last month, rallied as much as 4% as prices hitting all-time highs above $2,000 an ounce. Although silver and gold are off their August high, silver is finding some initial support around $26 an ounce; at the same time, gold is seeing initial support around $1,920 an ounce.
Although silver has significantly outperformed gold in the last few months, Butler said that it is still relatively cheap by historical standards. The gold/silver is currently hovering around 72.5, meaning it takes nearly 73 ounces of silver to equal the value of one ounce of gold points; Butler noted that the historical average for the ratio is around 59 points.
“Were inflation to continue to rise, as the US Federal Reserve are now allowing for, real interest rates could conceivably go further into negative territory than the current –1%, and silver could correspondingly rise further as investors seek cheap inflation protection and position their portfolios to benefit from low opportunity costs of holding a non-yielding asset,” he said in the report. “Silver still has another $20 to run before it reaches the 2011 nominal high, but this level is looking more achievable than it was a month and a half ago.”
Butler said that the Federal Reserve’s new inflation target of an average of 2% will bode well for precious metals.
Originally posted on Kitco