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20 May 2022Why Is Silver Falling
4 September 2022The average inflation rate for 2021 was 7%. The South African government wants us to believe that the current inflation rate is 5.9% as at the end of April 2022. This figure however, depends on the basket of consumer products the government decides is appropriate at the time. If there is a election on the horizon like right now, it will suit the government to report a low inflation rate to make them look good so they can get votes and stay on the gravy train. So, how do you achieve this low inflation rate? Easy peasy! You make sure the basket does not include high price rise items and viola, job done!
Finding out what the real rate of inflation is however, is very simple. Just ask your wife when she gets back from the grocery store. She will tell you very quickly that everything is now so expensive. From April 2021 to April 2022 cooking oil went up 42%, polony went up 31% and appels and chicken livers went up 20%. You can see the full list here. The inflation demon is here folks, and with a vengeance. We had the same thing back in the late seventies, but today there is a huge difference in the dynamics. See, back in the seventies things were going well and consumers had money to burn. Today however, things are hard and the average consumer has very little savings and huge debts. Interest rates are going to go higher to tame inflation. There are hard time ahead for us all.
The graph on the left is the yield of the US 10 Year Bond. This high yield means the US is desperate to get investors to buy their government bonds, In other words, to lend them money. Remember, if bond yields rise it means the bond investors are losing money because bond prices are falling. Inflation is the sole reason these bonds yields are so high. Interest rates in the US will have to rise drastically to try and curb inflation. This of course will send the stock markets tumbling down. Investing in US bonds is very risky! The only place this money can go now is gold and silver.
Why Silver Is A Good Investment Now
Gold and silver prices have declined significantly over the last couple of weeks. One of the main reasons is the margin calls investors in the stock markets are getting. They are selling their bullion to fund the margin calls. This will be very short lived as money start flowing from stocks and bonds into gold bars and silver bars. Silver is the most under rated asset class out there today. This is a huge buying opportunity. Tom Cloud’s Precious Metals Update explains this in detail. You can watch the video here.
It is important that we allow history to talk to us as we all know history has a tendency to repeat itself. The silver price graph on the left shows us what happened in 2009 when we had the sub prime market crash. The silver price shot up 380% and the gold price 157% in the subsequent 2 years. I strongly believe this scenario is going to play out again, just bigger this time around. You need to have gold bars and silver bars in your portfolio to take advantage of this huge jump in prices that is coming our way soon.
Physical silver shortages is a subject that we in South Africa last saw when we started lock down back in 2020. To me this is a very real issue because when the silver price starts to run, the refineries will run out of silver and the premiums will shoot up. This very situation is playing out in the US right now. Take a look at the following two articles.
US Mint Silver Shortage Explained
It is just a matter of time before we in South Africa will start to experience the same conditions. Once this happen, prices will start to rise sharply and silver will become very expensive.