Inflation Rising: Silver Prices Could Soar
Silver prices continue to be under pressure for all the wrong reasons. Don’t be shocked if this sentiment changes sooner rather than later, and we see a silver rush.
Investors must pay attention to inflation to see where silver could go next. You see, silver prices have a very strong relationship with inflation. As inflation increases, silver prices move higher as well, in multiples.
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As it stands, in the United States, inflation—and inflation expectations—are moving up very quickly. For instance, look at the chart below. It shows the year-over-year percentage change in monthly inflation figures posted by the U.S. Bureau of Labor Statistics (BLS).
Since January 2015, we have seen inflation in the U.S. move higher. In November 2016, inflation stood at the highest level since late 2014.
Chart courtesy of Federal Reserve Bank of St. Louis
Here’s the thing: if you pay attention to the inflation expectations going forward, they are making silver an even more compelling opportunity.
Please look at the chart below of five-day forward inflation expectations below. Saying the very least, inflation looks much higher going forward than it is today. Inflation expectations have soared over 50% in a matter of months.
Chart courtesy of Federal Reserve Bank of St. Louis
With all this said, don’t be too naïve to think that’s it for inflation.
Dear reader: you must remember what happened after the financial crisis of 2008 and 2009. The U.S. Federal Reserve jumped in to boost the U.S. economy and save the financial system, and started to print money. This was called quantitative easing.
Through this, the fed printed roughly $3.0 trillion out of thin air. This caused monetary inflation, which occurs when the amount of money in an economy expands quickly.
But know that after monetary inflation, price inflation usually follows. This is when the price of goods and services start to go higher. Why? There’s a lot more money chasing a similar number of things. Currently, we see that the five-year forward inflation expectation rate is around 2.10%. This could go much higher.
Silver Prices and Inflation: Big Gains Could Be Ahead
In the last eight years, the government measure of inflation, the Consumer Price Index (CPI) has increased 14.35%.
In this same period, silver prices have increased 44.33%.
If you do the simple math, for every one percent increase in inflation in the U.S., silver prices increased over three percent.
Given the inflation expectations, and the amount of money that’s been printed since the financial crisis, if we assume the CPI increases 25% in the next eight years; we could be looking at silver prices soaring 75%.
Keeping all this in mind, silver miners could be the best place to be when silver prices soar. If there’s actually a 75% move in silver prices over the next several years, it wouldn’t be shocking to see some silver stocks surging 750%.
