Inflation Goes Up, Yet Silver Comes Down?

It sure seems like everything is going up in price, doesn’t it? Everything, well, except for the price of silver, that is, which is down approximately five percent, year-to-date. In fact, just today, the US Government’s official Consumer Price Index was released for December 2020, and the numbers are starting to show what many people have been feeling all along: Rising prices.

Here are just a few of the highlights from today’s inflation report:

  • Food prices have risen 3.9% over the past year.
  • Used car and truck prices have risen 10% over the past year.
  • Gasoline prices have risen over 12% in just the last month.

Here’s the question: Is it possible that paper contract silver “traders” are about to be caught off guard by rising prices everywhere except for in the precious metals futures "market"?

I ask that question to make a couple of points. First of all, a lot of mainstream analysts down-talk gold & silver as if they were just some drab commodity the world, unfortunately, has to deal with. That said, what sense does it make that pretty much across the board, commodities are rising in price, and yet gold & silver, which are in fact commodities (but very unique in that they are money), are not just flat as we make our way into mid-January, but down in price by a not-insignificant amount? Secondly, a major component of gold & silver production is energy costs, and as we can see from the latest CPI report, the cost of energy to produce one ounce of gold or silver is rising every step of the way or every link in the supply chain. In other words, it takes a lot of energy to mine the earth, extract some unique elements, smelt them into crude bars, cast them into pure gold & silver wholesale bars, refine them into coins, bars, and rounds, and then get that money into the smart investors' hands.

So here we find ourselves this Wednesday morning, with silver down 5% two weeks into 2021, with prices rising everywhere, the US Federal government handing out free money again, and already talking about handing out more?

I’ll take that all day long, because here's the overall point: The Fed is telling us they want inflation to run hot, the US government's own inflation statistics, which many argue understate inflation, are now showing rising prices in many critical areas, and so to think that everything else in the world is rising in price except for silver tells me there's a disequilibrium somewhere, and in my mind, that disequilibrium is pointing to the fact that silver's price is just too low right now compared to rising commodities prices everywhere, and let us not forget that demand for silver is robust, both on the investment side and on the industrial-use side.

Furthermore, while witnessing all of the inflation all around us, one thing is certain: Dollars in a bank account, or under a mattress, or in a wallet, or wherever, buy less and less stuff every month, so I want to put my dollars in something that is rising in price with everything else, and while it may seem like silver is falling in price right now, which it is, silver is only rising in value.

Price versus value: When it comes to silver being down in price two weeks into 2021, that's kind of like those "extreme couponers" from back in the day who would walk into a grocery store with just a few coupons and walk out with free stuff.

Said differently, in my opinion, silver's price is nowhere near its value.

And I don’t think it will be long before we talk about $25 silver as the “good old days”:


Of course, I'm sure that right about now, Silver Bugs, Stackers, and other Smart Investors wouldn't mind a paper price plunge, especially since premiums are not out of whack (yet) and selection is great (for now).

Gold, the calmer, quieter money, is down about half of what silver is down, year-to-date:

In my opinion, weakness here is a gift, and weakness here is also a bear trap!

The gold-to-silver ratio is near the mid-70s again:

We sure have consolidated in the mid-70s for some time now, haven't we?

 Palladium is in the sideways choppy channel we've been following for what seems like forever and a day:

I still think that will be the case as the other three precious metals play catch up, but let us not forget that it was palladium, after all, that kept the precious metals market alive in the dark days of 2017 and 2018 when longtime gold & silver bulls we're capitulating all over the place and it seemed like gold & silver were never going to catch a bid.

 Interestingly, platinum is up slightly, year-to-date:

Again, as it is blatantly obvious that inflation is all around us, could it be possible gold & silver are "mispriced" right now?

Crude oil is firmly above $50:

Are Americans prepared for rising prices at the pump?

Sure, that was a rhetorical question, but please allow me to go ahead and spoil it for you: Assuming silver will eventually rise in price right along with everything else, if willing and able Americans have prepared by turning their dollars into ounces of real money, silver, then they are, at a very minimum, doing what they can to prepare.

Let's face it: there's only so much gasoline that a tank can hold, and storing gasoline in any quantity other than perhaps a small jerry can that doubles as fuel for the lawnmower could end in disaster, so that is totally not recommended, and, furthermore, gasoline degrades over time, whereas silver can be sunken to the bottom of the ocean and pulled up centuries later, only to be used as-is, re-cast, or whatever.

What I'm talking about here is having an inflation hedge, and, in my opinion, there is none better than silver. Now, obviously, that means not buying silver at $25 and needing to raise cash when the price is $23, but rather, holding silver over time until needed, at which time not only will money not be lost, but money will have kept its purchasing power, and, as an added bonus, if one believes there has been an active gold & silver price suppression policy engaged upon by various governments and central banks, then there could also be some substantial capital gains to go along with the preserved purchasing power.

I wouldn't be surprised to be substantial capital gains, and, in fact, I'm kind of expecting it.

Copper's not crashing like many have been expecting:

Next is for those same analysts to recognize the commodities bear market is officially over.

It's not over for the stock market:

It still keeps hitting record high after record high.

And, as usual, investors don't really seem to be all that concerned:

What is concerning, however, is not what is happening in the markets, but what is happening on Main Street in general, and in Walmart specifically.

That is to say, market participants may not have a care in the world, but if you look at the shelves and the shoppers in Walmart, this second week of January 2021, to say there's panic is a major understatement. Anecdotally, I think people are starting to catch on to the rising prices and ongoing supply chain disruptions.

Even yield on the 10-Year Note is signaling inflation:

But it's danged if you do and danged if you don't because the US can't handle higher interest rates, which means, in my opinion, that the Fed will monetize the debt to suppress rates, but that only adds fuel to the inflationary fire in the form of currency debasement!

I don't think we're bottom bouncing here:

I think we're more like skating on thin ice.

Thanks for reading,

Paul Eberhart

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Paul Eberhart
Paul Eberhart
Senior Market Analyst and Columnist

Paul Eberhart has been actively trading and writing about precious metals for more than a decade. A U.S. Army Iraq War Combat Veteran, he holds an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill...