Gold and silver at new lows
Both gold and silver are making new lows for the year, now lower than a year ago. Silver is back below $50 for the first time this year, maybe below $49. Gold is under $3,900. Gold took out its June low, bounced, then rolled over. Silver kept weakening. I did not expect silver to fall back below 50, but here we are.
This is an unexpected buying chance. People who wished they held more gold or silver when silver was at $125 now have their chance to buy more. Those who did not sell may feel "would have, could have, should have" - but selling the top and buying it all back is easy only with hindsight, hard in real time. A sharp drop can break confidence faster than it breaks the actual case for holding.
The 1980 comparison
Silver got above $125 once and will do it again. This was nothing like the 1980s Hunt brothers trying to corner the market, though a lot of shorts did get squeezed out during the run. Back in the 1980 peak, silver started 1970 at $1 and went to $50 - a 50x move. This recent run only roughly tripled, far smaller. Silver's breakout was real; the pullback was bigger than expected, but that does not change anything. The last time silver rose it almost hit 50, fell back below 20, then went to 125. The drop from $125 does not cancel the breakout before it.
Not selling, and the miners still profit
I am not selling any silver and was not planning to sell this year, so the lower price does not really matter. It means some silver mining companies make less on silver sold this year, but they will make much more in a few years at higher prices. One weak earnings year does not define these companies.
Most of these miners have costs around $20 per ounce, so they still make money at $50 silver. They are not hurting. Investors worried about inflation hitting the miners should look at production costs, balance sheets, and operating strength before leaving the sector - the margins are still good.
The Fed talks tough but does nothing
The markets have the Fed wrong. When Warsh read his prepared remarks this week, he gave a very upbeat view, called the economy great, admitted current policy is accommodative and that inflation is still too high - yet said he needs more information before raising rates, waiting until December. If he admits all that, rates are too low and he should raise them now. He is not this hawk. It is all talk.
The Fed knows it cannot fight inflation but cannot admit it, so it pretends it will fight hard to bring inflation to 2% knowing it cannot. The markets still take him seriously even though his actions do not match his words. The Fed is in fact acting - just not as it says. It is still running expansionary policy. Money supply is growing about 6% a year and the balance sheet is still expanding, the same thing the Fed did for the past six years: admitting inflation has been above target that whole time and doing nothing.
Even if the Fed hikes in December, it is another quarter point, no big deal. Inflation will keep rising much faster than the hikes. To get ahead of inflation, the Fed would have to push the funds rate above the inflation rate, and it is further below inflation now than before the first quarter-point hike. Real rates will keep falling the whole time the Fed hikes, so it does not matter if the Fed delivers a few more hikes - too little, too late.
The inflation numbers
This looks like 2021. Early in 2021 the inflation problem was obvious; it started in the last months of 2020, moving from import and export prices into producer prices and finally into consumer prices. The Fed first ignored it, then called it "transitory," and only late in 2021 admitted it had a problem and started jacking up rates. The same sequence is happening now.
CPI for all of 2025 was up 2.7%. It is already up 4% in the first nine months of this year. My estimate is the full year will be up 5%, and next year will be worse. Yet at most, with a December hike, the Fed will have raised rates 50 basis points against a 230 basis point rise in inflation. That is not tight money. The Fed funds rate in real terms will end 2026 lower than it began, so the Fed will finish the year even more accommodative than it started.
The debt trap
If Warsh were serious, rates would already be several hundred basis points higher - he would have said the Fed left rates too low and pushed the funds rate to 6-7%. Moving a quarter point, then waiting five or six months for another quarter point, changes nothing.
The real reason Warsh has not been aggressive is that he knows the economy cannot take it because of the debt load. The debt would be unserviceable if he jacked up short-term rates, since much of the refinancing now happens at the short end of the curve. We already spend $1.4 trillion a year on interest on the national debt. At 6-7% funds rates that would hit $2 trillion very quickly and keep climbing, and it would wreck the housing and stock markets - basically a financial crisis.
That leaves the Fed in a no-win spot: fight inflation and cause a crisis, then abort the fight and go back to QE, creating more inflation to bail everyone out - or keep fighting and let everything implode. Their only choice was to talk tough.
QE and the political backdrop
Even more important, probably next year the Fed will ramp up a QE program whether it cuts rates or not. It will be under heavy political pressure, especially with Democrats in Congress, to monetize government debt and try to stop long-term yields and mortgage yields from rising. It will not work, but they will try, and that is very bullish for gold and silver.
Midterms are next week. I expect Democrats to sweep the House and Senate. The House is a lock. The Senate is supposedly in play, but Republicans likely cannot keep it given how bad the economy is and their refusal to admit it. That leaves Democrats as the only party voters can pick if they want someone to fix things. Democrats will not fix anything - they will make it worse - but at least they tell voters there is a problem. Republicans keep saying the economy is booming, the hottest in the world, and voters know that is not true. They will not vote for Trump the way they did four years ago, when he was the one saying the economy stinks and he would fix it. He did not fix it; he broke it more.
Warsh says the economy is booming because that is what Trump wants him to say - Trump's line is that the economy is great, and he does not want the Fed contradicting it. If the Fed admitted a weak economy as its reason not to hike, it would undercut Trump. That shows the Fed is not really independent if Warsh is lying to the public to support Trump. The reason Democrats will do well in the midterms is that the economy is not nearly as strong as the Fed claims, and the Fed itself knows it - which is why it is not hiking.
More spending ahead
A Democratic-controlled Congress is bullish for gold and silver. There will be no gridlock. Democrats will do more harm than Republicans did, passing even more reckless deficits with bigger spending. They may add tax hikes, but not enough to offset the spending, and the kind that really hold back growth. Trump will not veto it, because the alternative is a government shutdown, and I do not think he will risk that. He will sign whatever Congress passes and try to claim credit for a "great deal," despite saying he will veto everything. The markets are underestimating how bad the fiscal situation can get. It is already bad and will get worse.
Where the money goes
Flows into value stocks will continue. Many defensive, dividend-paying names are up even on days the broad market is getting hit. If this is the start of a bear market in tech, the money leaving tech has to go somewhere, and it will go into defensive names. Gold and silver could have a very good year next year as money rotates back in, especially once markets start to reassess the Fed's resolve early next year - whether it will really fight inflation or just talk about it - and as the economy clearly weakens and the Fed can no longer pretend it is great.
For 2027, energy is the highest-conviction area. There is a lot of energy exposure and it has been very good. Oil prices should keep rising even if the war ends, which I do not necessarily expect - though there will be heavy pressure on Trump from Democrats in Congress to end it.
The signal for investors is to watch capital flows and fiscal decisions, not political messaging or campaign promises, and to tell real price weakness apart from any true breakdown in the case for holding metals. Panic selling can strip long-term protection from a portfolio exactly when uncertainty is rising.
