The Missing Key for Silver is Inflation

FX_IDC:XAGUSD   Silver / U.S. Dollar
Should silver             price in retail demand or economic sentiment?

Silver             prices have rallied hard since the beginning of October, up almost 10.5 percent since the October 2 low. However, traders are now budded up against key technical resistance. Will traders’ sentiment reject silver’s upward momentum, as it has done seven times since 2013, or will demand spark higher gains?

Silver             has had a rough go since crashing from its 2011-highs. Currently, silver             is trading around the 200-day EMA , which has proven fickle for silver             prices. Every time prices have been able to rally to the key pivot-point, prices have been immediately rejected or the trend’s momentum quickly faded.

Despite mints beginning to ration silver             bullion coins (again), prices are continuing to show the divide between sentiment and demand. As I have mentioned in several articles previous, silver’s demand is largely based upon economical factors, such as manufacturing and industrial output whereas gold             prices are almost entirely derived from investment demand in relation of central bank policy.

Some analysts expect silver             prices to rally because demand for minted coins has risen, and mints are having a tough time filling orders. But, if history is any indicator, this does not happen.

For instance, in July, the U.S. Mint reported that demand for American silver             eagles were so high that it depleted their stores and began to ration the bullion coins. Needless to say, silver             went on to drop an additional $2 per ounce while breaking $14 per ounce back in August.

It may not be all it is cracked up to be. The shortage of minted coins only represents one, small facet of silver             demand. According to, when the first shortage was reported, the shortage was found in the retail market but not the wholesale market.
Silver             has long been a trusted go-to for retail investors. It is a tangible asset that tends to be priced reasonably for the everyday investor. The multi-year lows carved out this year has only been seen as a buying opportunity.

Although, it is important to understand that silver             is not an investment for tough economic times because that is, generally, how market participants price silver             . Silver             is only a form of protection against inflation , which undoubtedly will show up. Investors will just have to be incredibly patient.

( Silver             outperformed during recessions that were coupled with higher inflation as seen during the 1940s and 1970s recessions).
Unlike gold             , silver             has no historic evidence of protecting against deflation ( gold             nearly tripled during the early-1930s). During significant bouts of deflation in the early-1920s, and again in 1929 to 1933, silver’s performance was horrible. It was also horrible as inflation subsided after the stagflation of the 1970s and early-1980s.

Again, following the lack of inflation – on paper – during the Federal Reserve’s seemingly endless quantitative easing programs after the financial crisis.

Current rates of inflation , as measured by consumer price index ( CPI             ) and producer price index (PPI), could suggest prices have more to fall. The U.S. is seeing the lowest bouts of inflation in decades.

The U.S. is experiencing the lowest levels of CPI             outside of a recession since 1954 and the lowest PPI since 2001, following the dotcom bubble.

However, silver             has experienced great gains following a recession as inflation re-enters markets. Silver             could get cheaper, but patience is a virtue and could reward big when inflation rears its ugly head.

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Historically, unless a recession was coupled with inflation silver did poorly. Once the economy did reflate, silver was off to the races. Notice the MACD during the late 80s/early 90s and mid-2000s.. Just kind of hung out. We could see the same thing but, personally, I would not let the current buying opportunity pass in hopes of lower prices.
+1 Reply
jangseohee CommoditiesTrader
u reckon inflation picking up stealthily? under the radar?
+1 Reply
Well, we are seeing inflation in cost of living goods. It is evident prices are picking up. Commodities have been a key factor in the overall deflation scenario, but they also have had large involvement with hedge funds, investment banking, etc.

I believe the lack of global growth has caused the deleveraging in commodity prices, which is adversely affecting inflation. I also feel the true, underlying inflation is misrepresented much like current unemployment figures.

A global recession should bring about more deleveraging, which should usher in more deflation. However, I think that would end when confidence in currencies is further eroded, causing inflation rather then a general pick up of economic conditions.

Very well could see another in 1970s/80s in the US. But, with all the central bank intervention globally, who really knows what is in store.
+1 Reply
jangseohee CommoditiesTrader
daily expenses keep on increase, utilities bill, mobile phones, daily meal... but price of gold and salary, etc keep constant and falling:-(
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