Magflation: An Unexpected Gold and Silver Driver / Commodities / Gold and Silver 2021
During the 1970's, the U.S. experienced adecade of below-trend economic growth combined with rising interest rates – andeventually – massively higher gold and silver prices.
Some sectors boomed while others lagged,and then as now, the majority of the population struggled with rising home andcommodity prices, bookmarked by lofty interest rates.
This stilted and challenging environment,which came to be called stagflation, eventually drove the moreperceptive people into gold and silver.
The result?
Gold, having been freed from itslong-term tether of $35, first rose to $200, then dropped to $100 beforerocketing to an all-time nominal high of $850.
As per usual on a percentage basis,silver rose even more, topping out at $50 the ounce.
For years now, (officially-stated)inflation has been annualizing at one or two percent per year. Most people,including the current generation of market participants, have little or nomemory of the relatively high inflation, interest rates and metal's prices ofthe late '70's.
They may be about to get a shock...
Plata o Plomo?
Mexican bandits, when attempting torelieve victims of their money, might ask them "Plata o Plomo?" –Silver or lead (bullets)?
Given that demand andthe rising cost of components have now priced ammunition several times higherin all calibers than last year, perhaps those who stack both silver and ammoshould change this phrase to "Plata y Plomo"... Silver and Lead.
The picture nearby from a local gun rangeshows something well beyond the Fed's sub-2% inflation target.
But then they also said it would beacceptable to let inflation "run hot." Last year a box of .22 roundscould be had for less than $25. Is the Fed getting what they asked for?
Inflation? Deflation? Both?
This debate has gone on for several yearsas governments continue to ramp up spending. Oversimplified, if they let ourdebts default, the result is deflation.
If the printing press and spending spigotremain unchecked, then inflation is more likely. Excessive demand, loss ofconfidence, and increased money velocity (turnover) leads reliably to theinflationary door.
A few asset classes like the stock marketand most real estate sectors initially keep up but later on lag severely, aspurchasing power declines precipitously.
But gold and silver catch a wave, andwealth preservation for the lucky relative few, historically topping out at 2.5- 3% of the population's assets, is largely assured, enabling a small minorityto seriously blunt the inflationary impacts on their material wealth.
Since August 2020, it hasn't been a bedof roses for metals/mining shareholders.
However, as Lobo Tiggre states, "Noprice goes up forever without taking a break. That's why they call it acorrection...In short, I see any near-term correction as a buying opportunityfor commodities - even more so for gold and silver, which are monetary metalsas well - notice that silver falls into both categories."
Prices UP? More buying of gold and silver.Prices Down? Same Story.
What's becoming increasingly apparent isthat when gold and silver prices rise, public buying increases. And when pricesdrop... public buying increases! The mints I've spoken to all report sustainedsales of everything gold and silver.
Take Australia's Perth Mint.
Perth Mint minted productsales for both gold and silver soared during February, with more than 124,000troy ounces of gold, and more than 1.8 million troy ounces of silver soldduring the month. Relative to February 2020, sales increased by more than 400%for gold and 200% for silver, as investors took advantage of lower preciousmetal prices.
The Federal Reserve has only three waysto "deal with" debt: make significant cuts in deficit spending;substantially raise taxes; or let inflation drive economic policy, with the endresult that government debts are paid off in increasingly worth-less paper.
Agriculture Prices Have Broken a 10-Year Downtrend
Given the way politicians and thecurrency creators have historically dealt with this, I'd cast a strong vote forthe inflationary "solution."
What indications do we have right nowthat not only is inflation higher in disparate sectors of the economyconsiderably than the government's highly- manipulated statistics tell us, buteven more important, that the rate of increase is moving at a worrisome (to us)speed.
In Indonesia, tofu costs 30% more than it did in December.In Brazil, the staple, turtle beans, have risen 50% in the past month.In Russia, consumers are paying 60% more for sugar over the last year.Cereal inflation is now running at a 20% annualized rate.Locust swarms are devouring food supplies in East Africa and Saudi Arabia.Michael Snyder writes that The Head of the UN Food Program has stated there will be "famines of biblical proportions in 2021."And demonstrating that, thanks in no small part to the recent Wall Street Bets – Reddit successful (if initially short-lived) foray into buying silver miners and physical metal, the case that we're moving into the public recognition phase for our thesis has been greatly strengthened.Note a new subreddit, Wall Street Silver, already has over 30,000 subscribers.
Few people are aware that, even as theFeds tout the validity of the CPI in tracking inflation – both current andexpected – they openly admit food prices are the most accuratepredictor of inflation!
Start keeping track of your grocery tab!
No less an establishment thinker thanformer U.S. Treasury Secretary, Lawrence Summers, opines, "I thinkthere's a real possibility that within the year, we're going to be dealing withthe most serious incipient inflation problem we have faced in the last fortyyears."
Consider that – starting right now –elevated inflation, concomitant with uneven economic growth and massive deficitspending via guaranteed income and the likely build out of MMT - is going toduplicate the deleterious stagflationary effects of the '70's... on steroids!
Got silver? Got lead?
David Smith isSenior Analyst for TheMorganReport.com and a regular contributor to MoneyMetals.com aswell as the LODE Cryptographic Silver Monetary System Project. He hasinvestigated precious metals’ mines and exploration sites in Argentina, Chile,Peru, Mexico, Bolivia, China, Canada and the U.S. He shares resource sectorobservations withr eaders, the media and North American investment conferenceattendees.
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
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