Is the Silver Bull Building?

Last week we took a look at some pressures that were weighing on silver in the short-term, and those pressures have indeed helped explain some of the weakness we’ve seen in silver. This week, it would be a good idea to look at pressures that are soon to shift the outlook from weakness in the short-term to rally time!

When will silver rally, and how high will the price go?

Those are questions for a different day, for today, we’re considering two forces that are about to function as twin-turbos for silver’s already sleek design and zippy engine: Federal government spending and consumer price inflation.

By now, practically everybody knows about, and is expecting, rather soon, Biden’s first coronavirus fiscal stimulus spending package, because quite frankly, everybody is affected by it in one way or another. That is to say, small business owners are wondering if they’ll get a payroll bailout to keep the lights on and the place open for just a few more months, and furloughed employees are wondering if they’ll soon be able to go back to work, as well as whether their “time off” will continue to be paid? Maybe a young married couple is looking forward to, or, dare I say, “counting on”, another stimulus check? Or perhaps the better off, a relative who has been keeping young married couple afloat is looking forward to the next round of stimulus because, quite frankly, he could use a little breathing room and, for lack of a better term, “indirect monetary easing” himself?

The upcoming coronavirus relief bill is just one aspect of Federal spending, and the $1.9 trillion package (for now) is just a taste of things to come.

To give a small understanding as to the scope and size of the spending that’s coming from the US Federal Government, please allow me to admit some ignorance to make a point. I have no clue who the US Transportation Secretary was under President Trump. Biden’s Transportation Secretary, Pete Buttigieg, however, has been mentioned in the mainstream news a couple of times lately, so now, the Administration position is coming to the fore. What is interesting about the reporting is that Buttigieg is out there, not talking about repairing our rough, vehicle damaging roads, which will surely cost a lot of money, if it can even be done, he’s not out there talking about reinforcing or replacing our crumbling bridges, which will surely cost a lot of money, if it can even be done, and he’s not out there talking about putting new roofs on our aging, leaky airports, which will surely cost a lot of money, if it can even be done, but rather, he’s out there talking about building the best, most high-speed train system in the United States for rail transport.

Seriously.

And while I'm not really sure if it can be done, I'm pretty sure it will cost a lot of money!

The first question that comes to mind is this: Casting aside the most ambitious, costly, and all-encompassing project in modern US history, if not in all of US history, how would even the most simple of infrastructure projects coming from the top down advance in 2021 or beyond, in an era in US history arguably dominated by disorganized, haphazard politics in Washington combined with the sure to become not insignificant issues of identity politics, discriminatory practices oversight, affirmative action, environmentalism, land use rights, contract scrutiny, states rights, workers’ union complexity, and more, to the point of fruition?

Advanced mathematics is not required to understand that the cost would be enormous!

Furthermore, when the mainstream press comes out with buzzwords such as “infrastructure” and “high-speed rail”, a minimum of questions should easily come to mind:

  • How much is Project du Jour projected to cost, and what will it actually cost?

  • Can it even be done, really?

  • How much of that money will be fraudulently abused or wasted?

  • What happens to Project du Jour following changes of Administration at the top?

There is an overall point I’m making here: Yes, “infrastructure” is arguably in dire need of maintenance and repair across the United States, but that is only one big-ticket item, and there are so many other big-ticket items in the United States which are becoming huge problems very quickly.

Casting military (defense) spending aside, which is its own entirely different animal and the topic of an article for another day, in my opinion, our education system is fragile to the point of collapse, our healthcare system is fragile to the point of collapse, and those things just represent some of the larger, systemic fragility. There are also the all too real problems in the here and now of underfunded pensions, informally bankrupt cities and states, loss of tax revenues, small business implosions, a homeowner, renter & mortgage crisis, and a whole host of other things that, when added up, can only mean spectacular budget deficits and debt accumulation that make government spending of the past look like the actions of an eBay-reselling low-baller haggling over faded, ripped jeans at a yard sale.

But wait, there’s more!

That’s right because I had not only mentioned spending, but I also mentioned consumer price inflation, and as luck would have it, or timing, or whatever, the latest Consumer Price Index report has been released just thing morning. Since I went on to write much more about the upcoming Federal government spending than I thought I was going to write about, let me make this point short and sweet, and I’ll let the Bureau of Labor Statistics make it for me, in their own exact words, from today’s Consumer Price Index for January 2021 (inflation report):

“The gasoline index continued to increase, rising 7.4 percent in January and accounting for most of the seasonally adjusted increase in the all items index.”

Whether a person believes inflation is understated, overstated, or spot-on, as reported by the Federal government, in my opinion, inflation is soon to become the talk of the town. Prices are already on the rise on the things that people actually need to buy on a continuous basis, such as food (3.8% inflation in the month of January for food alone), and now, individuals and the private sector have to compete with an ambitious Federal government with seemingly unlimited money and a newfound do-gooder attitude, with the keyword being “do-gooder” and the translation of the keyword being “by spending massive amounts of money, and then spending massive amounts more”.

Money solves all problems, didn’t you know, and since we can just print it, all of our problems will be solved!

Of course, it doesn’t really work like that, and there is a limit to all of this money madness, and there is a check to all of this fiscal insanity, and some people call “Constitutional Money”, some people call it “God’s Money”, some people call it “Honest Money”, some people call it “Sound Money”, and yet, some people just call it “Money”, but whatever you call it, it is simply called “silver”.

And “gold”.

The US Government can’t print either of those, and as such, “great resets”, “bad resets”, or “meh resets” aside, the prices of gold & silver will reflect the unhinged printing of all of this unbacked, debt-based fiat currency dependent on exponential, unsustainable growth, accordingly.

For now, we'll just have to see where silver goes next:

I still think we're headed for one more trip lower.

In fact, my very unpopular set of calls, right now, at the moment, which is not anything more than just my opinion, of course, for what it's worth, which isn't really much, is for a stock market crash and/or correction, a final surge in the US dollar index to perhaps 95, and a dramatic, quick trip down into the upper teens for silver as those two main dynamics unfold.

Part of my thinking also has to do with gold's impending "death cross" on its daily chart:

Because gold has been bearish in the short-term, in both the price action and in the technicals, and as the saying goes, "when gold rises, silver overshoots and outperforms gold to the upside, and when gold falls, silver overshoots and outperforms gold to the downside", and so far, gold has continued to fall, yet silver is already in rally mode?

This divergence can be best seen in the gold-to-silver ratio:

If I'm right on my current set of non-reliable calls, silver has to catch down somewhat to gold to outperform gold to the downside, but silver doesn't have to fall all the way down to gold, because gold could also rise a little for silver and gold to recouple.

We'll see.

One of the reasons I may be wrong about my current call is the surge in other precious metals and commodities.

 Platinum has been on a tear:

 

We're at 52-week highs and looking like we're breaking out here!

And palladium, with all of the patience in the world, continues to mark time as the other precious metals catch up:

Call me crazy, but that includes silver catching up in a big way too!

Crude oil prices were rising in January, but they haven't stopped rising in February:

So, yeah: Get ready for more pain at the pump.

Of course, if I'm right about the stock market crashing and/or correcting because there is the whole "Fed Put" out there, so any "crash" may be underwhelming, and if I'm right about the US dollar surging one last time into the mid-90s before beginning its fatal fall, then the precious metals and commodities will likely "sell-off" too, so I would expect a crash in the price of crude oil, but I also think all of these dynamics play out rather quickly, and by rather quickly, I mean over the short-term, but again, that's my opinion, which is probably wrong.

Copper is shouting from the rooftops, "inflation is here":

To summarize one of the main points of today's article: Copper is already surging in price, and now, individuals and the private sector must compete with an ambitious and spend-happy US Federal government for resources and materials.

For now, investors have no fear in the market about any of this stuff:

The market can only go up, right?

This is why people think they've found a great "inflation hedge" in the stock market:

Although there are several problems with using the stock market as an "inflation hedge".

For example, what happens when the rules are changed on-the-fly, as we have seen time and time again, and changed not in a good way, or what happens if we enter the crack-up boom and those stock market "winnings" can't be taken out of the "market" and converted into real things?

When the mainstream talks about inflation, all they can talk about are interest rates and the fact that yields are rising, but still low:

 

If the Fed is the "buyer of first resort" of US Government Paper, however, the mainstream misses the point.

The point is that the official suppression of interest rates comes at a cost of the US Dollar:

Sooner or later, it will require more and more of them to suppress interest rates, which means those brand new dollars, in ever-increasing supply, buy less and less stuff.

Thanks for reading,

Paul Eberhart

← Previous Next →
We can't find posts matching the selection.
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.