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Silver Is One Spark Away

Silver is still a country mile from its all-time record high, which, coincidentally, was not set back in 2011 but in 1980. That’s amazing, isn’t it? Not to mention, it’s also amazing how much monetary and price inflation there has been since 1980, as well as how much debt accumulation there has been too. But then again, we do have an unbacked, debt-based monetary system, so this is all par for the course.

Regardless, here in December of 2020, with every financial “asset” on the planet seemingly hitting record high after record high after record high, silver is sitting under twenty-five bucks.

Will silver ever get moving again, and what will it take to get silver moving?

In my opinion, we are but one spark away from some runaway price action in silver, and silver doesn’t even have to break free from the iron grip of state-sanctioned and non-state sanctioned price manipulation either to go on such a run higher in price.

Here’s the real question: What could be the spark that sets it off?

In no particular order, some of the sparks that could set off an explosive move to the upside are:

  • A plunge in the value of the US Dollar
  • A crash in other so-called “financial assets”
  • The deployment of another round of Economic Impact Payments ($1200 stimulus checks)

Please allow me to elaborate on those sparks, which, by the way, are only three possible sparks out of very many sparks.

A PLUNGE IN VALUE OF THE US DOLLAR

If the US dollar begins to plunge in value, then, in my opinion, silver will stand up in its role as a “store of value”. First of all, some context. The US dollar has been on a bullish run, basically, since mid-2014, peaking shortly after the US Presidential Election of 2016, and only to double-top earlier this year:

Since peaking in March during the height of the first Covid crisis, the US has only embarked on fiscal and monetary policies that do not add value to the US dollar but destroy value.

Here’s the question: How many times are “market participants” going to seek safety in the US dollar, especially a dollar that is rapidly losing value?

In my opinion, they may have already stopped seeking safety in the US dollar, which means the Fed is the buyer of first resort, but that’s an article for a different day. Furthermore, it is generally accepted that a Biden Administration would engage in more dollar destructive policies than a Trump Administration would, and so the certainty of the 2020 election could be one of those sparks.

A CRASH IN OTHER SO-CALLED “FINANCIAL ASSETS”

The stock market sure has been on a tear:

It’s hitting record high after record high.

The problem with the stock market is that stocks are financial assets measured in dollars. Dollars that are actually debt-instruments, called Federal Reserve Notes.

Bitcoin has also been on a tear, but basically, any of the so-called “financial assets”, which really amount to pure speculation plays, which measure their prices only in dollars, have been going bonkers as speculators reach a point of absolute euphoria and total mania.

Silver, however, is the opposite of that dynamic right now and cool as a cucumber. Therefore, in my opinion, if any of the market adrenaline wears off in the “financial asset markets”, silver, which is priced in dollars but measured in ounces, will, in my opinion, benefit from a “flight to safety” bid as market participants come down off of their all-time-record-financial-asset-highs and look to reduce their exposure and risk. The problem here is that silver is still so far away from its all-time record highs that the move out of risk assets and into the safety of silver could be a spark that really sets the silver price on fire, especially if market participants don't just move into safety but end up truly learning about silver, which they'll come to find out is just like gold. Furthermore, many market participants are concerned that if the stock market, or Bitcoin, or some other "financial asset" crashes, that silver will crash in price too, but have we also not seen that silver has been in a "correction" since early August, and so the "crash" in silver has already likely happened?

DEPLOYMENT OF ECONOMIC IMPACT PAYMENTS ($1200 CHECKS)

One way or another, more stimulus is coming, and with each passing week, the closer we are to that moment. It all comes down to how much will it be and who gets what. As part of the next round of Federal fiscal stimulus, I still think the $1200 Economic Impact Payments for eligible taxpayers ($500 for eligible dependents) are coming because there is no more direct way to stimulate the economy than the way the Federal government did it back in the Spring and Summer.

Those stimulus checks, for example, amount to $3400 for an eligible family of four, and the checks are highly consumer price inflationary. Think about it: There have been some eviction and foreclosure protections in place to varying degrees, there are free school breakfasts and lunches to all school kids in America, and Americans are, in general, being fed via food banks, food stamps, and other charitable giving, and so Americans are, in general, getting by. Suffice it to say, a not insignificant number of people would use some or all of the money to buy something they’ve been wanting to buy, such as a used car, a washer, and dryer, a new computer, and a phone, or furniture. Well, perhaps somebody will also want to save that money stimulus check, but, already sensing and feeling consumer price inflation everywhere, that person does not want to see those savings destroyed by the inflation monster, and so he or she simply buys silver (or gold) as an “inflation hedge” until deciding what to do later on, if anything at all?

Those are only three sparks that could really set silver on fire, and one or more of them could happen at any moment.

In the meantime, silver sure looks like a bargain to me with a decent selection of bars, coins, and rounds available for under $30, in-hand:

Remember, daily jumps in the price of one dollar or more are no longer pie-in-the-sky talk, but something that can catch value investors off guard if a few days go by without checking on the price.

Gold is still at a nice discount from its 2020 all-time record highs:

The gold price may be down over the last few months, but the amount of debt created around the globe certainly is up big time!

 The gold-to-silver ratio looks ready to kiss the mid-70s goodbye:

 

If gold & silver are ripe to rally, I think we'll see a falling gold-to-silver ratio brought on by rising gold & silver prices, with silver outperforming gold to the upside.

It will be nice if platinum is putting in a higher-low right now:

That would be the second higher-low and help give us confirmation of the trend change to bullish in the short-term.

Palladium, on the other hand, is right back in its sideways choppy channel:

 If palladium is making a trip back down to the support of the channel, I'd be looking for $2200, but if the other three precious metals begin to really break-out here, then I could see palladium looking to break-out from its sideways channel once again, which it has attempted several times over the last few months to no success.

 Copper looks to be consolidating gains at around $3.50:

On the one hand, yes, copper is "overbought", but on the other hand, the money printing by governments and central banks around the world is kind of out of control, isn't it?

Crude oil is now perched at $45:

Crude oil may be due for a trip down to its 50-day moving average, which, by the way, is now sloping upward.

Many market participants think interest rates are rising, even though they haven't breached 1.0% on the 10-Year Note:

I think the Fed will step in as the buyer of first resort, however, to cap interest rates or even walk them back down.

None of this is any good for the value of the "World Reserve Currency":

And if that's all of the bounce we're getting out of this dead cat, then it really could be "look out below"!

Amazingly, through all of this, there is barely any fear in the market:

In my experience, however, fear comes out of nowhere and when it's least expected.

All it takes is a spark.

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.