Silver Hits $20 For The First Time Since 2016… And Why It Will Go Much Higher
The comments below are an edited and abridged synopsis of an article by Tyler Durden
For the first time since September 2016, silver futures recently broke above $20, just a few months after dropping to the lowest since 2009. Silver is set to continue outperforming over the next year.
Gold is more like money, and silver is more like a commodity. Consequently, the relationships that Durden follows involve the gold/GNX ratio (gold relative to the price of a basket of commodities) and also apply to the gold/silver ratio. Gold tends to do better than silver when inflation expectations are falling (deflation fear is rising) and economic confidence is on the decline.
Anyone armed with this knowledge would not have been surprised that the collapse in economic confidence and the surge in deflation fears that occurred during February-March this year was accompanied by a veritable moon-shot in the gold/silver ratio. Nor would they have been surprised that the subsequent rebounds in economic confidence and inflation expectations have been accompanied by strength in silver relative to gold, leading to a pullback in the gold/silver ratio.
Expect a modest recovery in economic confidence and a big increase in inflation expectations over the next 12 months, meaning that Durden expects the fundamental backdrop to shift in silver’s favour. As a result, he is intermediate-term bullish on silver relative to gold. He doesn’t have a specific target in mind, but it isn’t a stretch to forecast that at some point over the next three years the gold/silver ratio will trade in the 60s.
Before silver commences a big up-move in dollar terms and relative to gold, there could be another deflation scare. If this happens, it probably will do so within the next three months, although any deflation scare over the remainder of this year will be less severe than what took place in March.