Mama Said There’d Be Days
Even if silver is destined to head much higher, there will be hiccups along the path to success – such as the single-day 4% drawdown in the silver price.
On September 29, silver plunged to a 14-month low, and unfortunately some investors are going to end up selling at the worst possible time.
Yet, they’ll only realize their error in hindsight. For the moment, the sentiment surrounding precious metals, and silver in particular, is absolutely abysmal.
With spot silver falling as much as 4.6% to $21.42 an ounce, it’s getting increasingly difficult to drum up support for the white metal. Gold is on course for its biggest monthly decline since June, but silver’s headed for its biggest monthly loss in more than a year.
Besides, the price action isn’t the only way to gauge the rock-bottom sentiment surrounding silver. Check Twitter or any financial message board, and you’ll witness an onslaught of bearish postings and dramatically low price targets.
Frankly, it’s a tough time to be in the business of silver investments. Months ago, I was expecting to see much more anticipation in the lead-up to the Silver Symposium, a premier mining and investment conference returning in 2021 to the Silver Valley in Coeur d’Alene, Idaho.
I definitely appreciate the intention behind this event, but even with the silver market’s biggest influencers attending and speaking at the Symposium, it appears that they just couldn’t garner the attention that ought to accompany such an event.
Perhaps it was just an instance of unfortunate timing. When the silver price is flying high, suddenly everybody and his uncle is interested – but when the bullion’s price wanes, so does the enthusiasm.
But then, the crux of contrarian investing – which has earned me a great deal of wealth over the years – is to buy high-conviction assets when it feels like no one’s interested.
Right now, the mainstream press is extremely bearish on silver. The same can be said about social media pundits, and the investing community in general.
People don’t want to talk about silver’s crucial industrial uses. They’re not discussing how silver is vital to electric vehicles, to solar power, to the electronic devices that so many millions of people use.
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Furthermore, some traders don’t really understand why precious metals are sliding now. It’s not because of a decrease in demand – informed investors know full well that the need for silver is increasing, and will continue to rise in the coming years.
Nor is there an issue with oversupply. The fact is, the silver supply is in a major deficit, so miners will be strongly encouraged to ramp up their operations well into next year.
So, why isn’t the silver price reflecting the severe imbalance between low supply and rising demand?
There are two main culprits at work here. Rest assured, both of them are temporary.
The first involves the fear of an interest rate hike. Yet, there’s a fundamental confusion going on here.
Federal Reserve Chair Jerome Powell said last week that the U.S. central bank could begin scaling back asset purchases in November and complete the process by mid-2022. This is tapering, but it’s not an interest rate hike.
Both the FOMC dot plot and Powell himself have made it abundantly clear that government bond yields must remain low for the foreseeable future. No worries – bonds won’t provide any competition for the returns provided by the stock market, or by precious metals.
The other culprit is a small and temporary rise in the U.S. dollar. For the moment, the precious metal markets are particularly sensitive to moves in the dollar – but of course, in the long run there’s nowhere for fiat money to go but down.
For the past four months, the annualized U.S. inflation rate has equaled or exceeded 5%. Inflation is clearly not “transitory,” and it will suppress the dollar’s value while making metals more precious than ever.
And while gold will surely shine, the move in silver will be extraordinary. So don’t let the sour sentiment in silver get you down: there’s a surge of interest coming soon, right after the silver price shoots higher.
Chief Editor, CrushTheStreet.com
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