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Peter Krauth – “IGWT: Silver’s Inflation Conundrum”

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Peter Krauth – “IGWT: Silver’s Inflation Conundrum”






Inflation continues to hang like a dark cloud over the economy and markets. But a more immediate, and related, concern has emerged in the last month or so.

It’s the risk that the Fed will raise rates too much, and too late, causing an economic recession.

There’s been a lot of talk (more like hope) that the Fed will manage to engineer a “soft landing.” That’s when rates are raised just enough to sidestep the economy overheating (from inflation) while avoiding a recession.

Let’s be clear. The odds of avoiding a recession are very low. It almost never happens once the Fed starts a rate-hiking cycle. The Fed knows this, but they continue to pretend otherwise.

Just a few days ago there was an interview with a panel of central bankers at the European Central Bank Forum in Portugal. The Fed’s Chair Jerome Powell participated and was asked about inflation.

Powell actually said: “I think we now understand better how little we understand… about inflation.”

To that, the interviewer replied: “That’s not very reassuring.”

And Powell’s retort: “Honestly, this was unpredicted.”

His reason (excuse)? The Fed’s predictive model, the Phillips curve, is used to forecast the correlation between inflation and unemployment, but it leaves out the risk of a supply crisis. And yet, that’s exactly what happened.

Then Powell went on to say there’s nothing wrong with their model because the supply risk isn’t even part of their model.

With hundreds of Ph.D. Economists working at the Fed, they didn’t think to consider the risk of a supply shock after an unprecedented global economic shutdown?

Needless to say, growing market concerns of a recession have hit the commodities sector. The odds of a period of demand weakness (recession) are growing and getting priced in. The bellwether, copper, is down 18% from its recent high near $4.65/lb. to its current $3.80.

The story is similar to most other base metals. Silver is down about 19%, while gold is off about 9%.

Silver’s important role as an industrial metal (54% of demand) is what’s weighing on its price as it follows the base metals sector.

And despite broader market weakness, it’s possible most of it has been priced in by now. The selling has been extreme in the S&P 500 over the past two quarters. Since WW2, there have only been 7 other instances of +20% two quarter drops. And if you look at the returns following those periods, the market outlook is surprisingly strong.

Source: Bespoke Investment Group

There’s no certainty that we’ll see strong markets over the next quarter or year. But history says the odds are high. In fact, I would not be surprised if, despite the Fed’s “tough talk” on inflation, it manages to raise rates just one more time, perhaps to the 2.25% – 2.5% range.


Since 1980, each Fed hiking cycle has peaked at lower rates. We could already be close to the end. If that’s the case, then the Fed’s “pivot” to ending its rate hikes, and even potentially reducing rates, especially under a recession scenario, is likely to kick off a new commodities rally. As I write, the 10-year Treasury Note is already back at 2.98%, after peaking near 3.5% just 2 weeks ago.

Even if we see continued economic weakness, silver’s role as a monetary metal is likely to help buoy its price. In a recent interview with the Economic Times, legendary investor Jim Rogers said he sees silver and agriculture as probably the least dangerous investments over the next 2-3 years.

In July’s Silver Stock Investor issue, I reviewed a section of the annual In Gold We Trust report (In Gold We Trust report download). I analyzed the report’s outlook for silver and provided my own assessment of what may lie ahead. That’s your free article for this week.

I then looked at silver’s technical picture, followed by a deep dive into a portfolio holding that’s grown substantially in the past year by acquiring a neighbouring project. That was followed by the portfolio table and updates.

I also highlighted an upcoming event that I hope to attend: the New Orleans Investment Conference.

Organized by fellow newsletter writer Brien Lundin whom I had the pleasure to meet in Toronto recently, this is a gathering of a long list of legendary market observers. Held October 12-15, it will be the first time in nearly three years with the full contingent of attendees and exhibitors.


The roster of experts is second to none, including James Grant…Doug Casey…Mary Anne & Pamela Aden…Steve Hochberg…The Real Estate Guys…Jim Iuorio…Gary Alexander…Dave Collum…Thom Calandra…Albert Lu…George Gammon…Jon Najarian & Marc LoPresti…Tavi Costa…Lawrence Lepard…Dominic Frisby…Adam Taggart…Bob Prechter…Adrian Day…Mark Skousen…Brent Cook…Chris Powell…Peter Boockvar…Danielle DiMartino Booth…Omar Ayales…Brent Johnson…Rick Rule…Jim Rickards…Nick Hodge…Lobo Tiggre…Mike Larson and Brien Lundin himself.


This conference promises to generate superior market insight and profit opportunities.

CLICK HERE  to find out more and register.



IGWT: Silver’s Inflation Conundrum



Incrementum fund management produces the outstanding annual In Gold We Trust Report. It’s an absolute wealth of must-read information for the precious metals investor. Click here to read my full thoughts on IGWT: Silver’s Inflation Conundrum.


Courtesy of The Silver Stock Investor

Posted July 20, 2022

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