Silver Price Launches Toward Major Technical Breakout / Commodities / Global Debt Crisis 2020
Precious metals markets are on the move thisweek.
They got a boost following Wednesday’s FederalReserve policy statement. Fed officials kept their benchmark interest rate nearzero and vowed to continue injecting $120 billion per month into the bondmarket.
The central bank seemed unconcerned about bubble-likeconditions in equity markets. Nothing seems likely to deter it from pursuingmore stimulus for the foreseeable future.
The ultra-dovish Fed helped nudge the U.S.Dollar Index down. It broke below 90 on Thursday to record a new low for theyear.
Dollar weakness energized gold and silver markets.
In fact, silver appears to belaunching toward a major technical breakout. The white metal gained two dollarsthrough Thursday’s close to clear $26 per ounce. More importantly, it clearedthrough a zone of resistance to hit a 12-week high.
A strong weekly close that confirms thebreakout could lead to a big year-end rally and perhaps set the table for arecord run in 2021.
As precious metals buying shows signs ofpicking back up, perhaps some investors are beginning to rethink the risks ofholding conventional paper assets such as U.S. stocks.
Yesterday, the S&P 500 hit a new record –on the same day as America hit a grim record for daily coronavirus deaths. As California and New York City lock down, anew wave of business closures and job losses will hit the economy to close outthe year.
Millions are struggling like never before justto get by as they wait for a stimulus check or some kind of Christmas miracleto arrive. Much of the country is suffering through nothing short of a greatdepression.
Yet on Wall Street it’s boom times. Neverbefore have we seen so extreme a divergence between the real economy and theexchange-traded economy.
The stock market boom is being artificiallyfueled by Fed policies. For now, nobody seems concerned about any negative sideeffects of all the stimulus. The only concern being voiced about stimulus inthe mainstream media is that Congress hasn’t done enough to get more of it outinto the hands of ordinary Americans.
What ordinary Americans may be facing after thevirus recedes and the lockdowns lift is rising costs of living. In fact, thatis one of the explicit goals of the Fed’s money printing campaign.
Jerome Powell and company have declared that inflationhas been running too low in recent years. They want to push ithigher. They even welcome overshoots of their stated inflation objective.
Yet stocks and bonds are priced as if priceinflation will never gain traction. In fact, these asset classes have latelybeen the primary beneficiaries of an exploding money supply, which has yet tohave an obvious impact elsewhere.
The supposed justification for all the stimulusis to help the economy recover.
In the event the economy doesshow strong growth next year as the coronavirus fades away, a lot of pent-updemand could trigger a surge in consumer and producer prices. Ahuge supply of emergency rescue dollars could suddenly start chasing a morelimited pool of raw materials and finished products.
Stimulus-fueled gains in financial marketscould turn into pains for investors who expect to continue riding the Fed’sexpansionist wave through conventional paper assets. The Fed can injectliquidity wherever it wants initially, but it cannot control where its newlycreated trillions of dollars ultimately end up.
An unintended consequence of bailing outeveryone from Uncle Sam to junk bond issuers on Wall Street may be to underminethe credibility of U.S. dollars and catalyze an ultra-bullish phase in gold andsilver markets.
Gold and silver bulls will be looking for atransition in investor psychology to take place – from paper assets being thepreferred investment vehicles to an environment where hard assets are in favor.Obviously, that hasn’t happened yet.
It needn’t be the case that the bond market orstock market crash before metals markets can shine. Outperformance and positivedivergence can take place over time regardless of whether stocks hold up innominal terms or the Fed keeps bond yields suppressed.
The upshot is that precious metals, especiallysilver, have a great deal of room to run on the upside before beingclose to being as historically expensive as the stock market is right now.
By Mike Gleason
Mike Gleason is President of Money Metals Exchange, the national precious metals company named 2015 "Dealer of the Year" in the United States by an independent global ratings group. A graduate of the University of Florida, Gleason is a seasoned business leader, investor, political strategist, and grassroots activist. Gleason has frequently appeared on national television networks such as CNN, FoxNews, and CNBC, and his writings have appeared in hundreds of publications such as the Wall Street Journal, Detroit News, Washington Times, and National Review.
© 2020 Mike Gleason - All Rights Reserved
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