Have Your Silver Ready!

BIG WEEK AHEAD: Better Have Your Silver Ready!

Patience pays, but waiting can be costly. Two of the summer’s most impactful events are coming up this week, and chasing commodity prices after the fact won’t be nearly as profitable as anticipating the trends before they happen.

First up, there’s the U.S. consumer inflation report for May that’s set to be released on Tuesday, June 13. The Consumer Price Index (CPI) had already come down from 9.1% in June 2022 to 4.9% in April of this year. What the Federal Reserve is looking for is follow-through: will inflation continue to ease, or will it unexpectedly jump back above 5%?

It’s not just an academic question because the Fed wants two things: 2% inflation and an excuse to tap the brakes on interest rate hikes so the central bank can declare “mission accomplished.” Without a doubt, Fed Chairman Jerome Powell wants to be known as the one who slayed the inflation dragon and saved the economy in the 2020s.

The day after the May CPI report will be the Fed’s decision on whether to hike interest rates again, pause the hikes and do nothing, or pivot to interest rate cuts. An actual cut this time is unlikely, but the commodities market doesn’t need that.

Practically every other commodity has already had its parabolic move in the 2020s. Natural gas spiked to $10, and oil went to $100 for a bit. Lumber went absolutely vertical before correcting. What has stopped precious metals from participating?

It’s mainly been high bond yields. Risk-averse investors such as retirees have rediscovered government bonds now that they actually pay more than 1% or 2% per year. Granted, the 10-year Treasury note yield is still below the annual inflation rate:

Still, some investors have chosen bonds over precious metals as a low-risk portfolio holding during this relatively high-rate environment. Now, you might expect precious metals to get crushed if bond yields have more than tripled, but gold has held up at around $2,000, and silver has been even more resilient.

Given these circumstances, it’s actually quite impressive that silver continues to push up against the crucial $25 resistance level. As the old saying goes, resistance levels are meant to be broken, and $25 has been a longstanding ceiling that can’t and won’t last forever.

The question is this: do you want to be in the trade before silver breaks through that resistance point or after? Bear in mind that silver touched $50 in 2011, so there’s nothing but air between $25 and $50.

This week’s events could trigger the start of a rise in the gold price and an even bigger move in silver. Since silver is much cheaper than gold, silver typically moves faster, and that’s one of the reasons it’s part of my core portfolio holdings.

There are no guarantees, but the odds are definitely in your favor if you’re positioned properly. The markets currently see a 72% probability that the Fed will pause its series of interest rate raises this week. If you’re truly a forward-thinking investor, however, you’ll need to consider what’s likely to happen down the road.

With an election year coming up in 2024, no one with any political power wants to throw the country into a deep recession. Pausing interest rate hikes won’t be enough; rate cuts are unavoidable, and they’ll have to happen fairly soon.

A pause can boost the silver price, but a pivot to rate cuts could send silver to the moon. Again, $50 will be the first target, but excited commodities traders are known for breaking through these levels at breathtaking speeds.

This won’t be the only catalyst for silver, though. Silver is known as an industrial metal for its many applications, including its use in solar panels. That’s important because according to the IEA, 2023 will be the first year on record in which investments in solar power generation will surpass investments in oil production.

So, the long-term outlook for silver as an essential component of solar energy adoption is irrefutable. Yet, the event that could kickstart silver’s fast path to $50 and beyond is America’s central bank undoing what it did over the past year. With that, risk-averse and growth-focused investors alike will have to chase the silver price higher, though you still have a brief window of opportunity to get in before they do.