Where silver sits now
Silver trades at $64 an ounce today, after coming within pennies of closing at $70 at the end of August. The trade has reversed through calendar 2026. Silver corrects harder than gold and stays on a path below gold until gold's bullish trend starts again and the generalist investor returns.
In a precious metals bull market, gold sets the momentum. I think that is because the fear buyer starts the trade. Once gold's rise gives the hard-money story enough weight, the generalist investor comes in and silver begins to outperform gold. This has held across four prior markets, though I have tried and failed for 50 years to understand why. Anyone justifying a silver purchase now as a contrarian move is very wrong - six years ago silver was truly hated, and internet comments from then prove it. This does not mean silver goes lower from here.
At this price, silver stocks are probably a better speculative asset than silver itself. They show better risk-to-reward parameters in a speculative wrapper. Where you sit on the risk-reward line is your own choice.
Manipulation claims
Ed Steer holds that the silver market is largely manipulated. Bob Morotti says all markets are manipulated and silver is no different. The claim of a permanent force capping silver is silly. All markets are manipulated - even ones as large as the US Treasury market and the Libor market have been manipulated in the very short term. Manipulators do not care about price direction; they do it to make money. When the outlook is bullish, they push markets higher; when bearish, they push lower. The idea of a shadowy cabal - a trilateral commission or an "international Jewish conspiracy" - does not hold up. Time in large Wall Street institutions taught me the only thing big money cares about is the quarterly cash bonus. Holding a large short position needs regular margin payments and adds nothing to quarterly cash flow, so it simply does not happen.
Real short-term manipulation works through leverage. The silver futures market is very liquid and very leveraged. On a single day it is common to see 200 times the silver trade that is actually available for good delivery. A well-capitalized group can build a large short position with a short ladder 3, 6, 12, and 24 months out, then borrow enough physical silver to sell overnight when trading is thinnest, doing as much damage to the spot price as possible. They cover the shorts, which might be 50 times the size of the position they sold, use the profit to cover the loss on the physical trade, and walk away. This has happened since the 1970s. Back then it was easier to push precious metals up, so the same mechanism ran on the long side.
The larger lesson: the same leverage that crushes silver can drive it up fast when sentiment turns. Focusing only on suppression hides real market risk and leads to bad timing.
The all-time high that is not
Silver above $60 seemed unimaginable last year, and even after the run to triple digits earlier this year, silver has not hit a real all-time high. Adjusted for CPI data, silver would need around $250 to match the 1980 high of $50. Using real inflation, the number is far bigger. Some people have named targets of $200, $300, and up to $1,000 an ounce, given the debasement of the currency silver is measured in. A market can trade hundreds of times more paper than physical metal exists to deliver, creating a false sense of depth.
The people worried about the silver price think their time preference matters. They will not do the arithmetic to find the after-inflation price. They want the price up in the near term so they can sell and buy something. Their strategy on currency debasement may be right, but their tactics fall apart because they cannot bear holding a position over a long weekend. The most expensive mistake is expecting a decade of monetary erosion to pay off in a few months.
Rates and the dollar
The FOMC meets later today and is widely expected to hike 25 basis points. It is nearly pointless to obsess over this - the Fed has little control over the economy through such tiny moves. In the near term, there is truth to the fear that rising rates hurt precious metals: higher Treasury and money market yields pull people away, and a bias against precious metals still runs through the broad economy, along with a belief that the 1982-to-2022 setup is still intact.
A rate rise does two things. US nominal interest rates are still higher than global rates, so global money keeps flowing into the US dollar. People dislike the American president and assume everything American is out of favor, but the dollar is very much in favor against other currencies. A stronger dollar pushes down things priced in dollars - gold, silver, Canadian dollars, and euros.
I believe the US dollar loses 75% of its purchasing power over 10 years, while most people's attention span is 10 weeks. Gold should at least hold its nominal purchasing power in dollars, meaning its price rise will mirror the dollar's decline. History backs this. In the 1970s, the last time the dollar lost 75% of its purchasing power, gold went from $35 to $850. Silver went from $1.30 in 1970 to $50 - a 50-fold rise, not a 25-fold one. The trouble is people want a decade's worth of gains in three or four months, and that transaction is not on offer.
The advice: anyone obsessed with silver should become obsessed with time. The greatest financial strategy in the world is compounding, and compounding takes time.
Life cycle of the dollar
James Rickards recently argued that China and other nations sell Treasuries because they need dollars, which is bullish for the dollar; he sees a long-term downward path but thinks the BRICS-driven collapse story is overblown.
The dollar will do badly on an absolute basis but not relative to others. The euro will do a little worse. The Canadian dollar will do a little worse. Doug Casey calls the dollar the prettiest mare at the slaughterhouse, which fits. A basket of goods and services that costs an American $1,000 today will cost $4,000 in 10 years. That is marginally better than what the Euro zone or Canada will face.
Currencies will be far more volatile than in the past, more like the 2000-to-2010 period than 2010-to-2020. Rich people who want to keep liquidity in cash will need to save and bank in more than one currency. To protect purchasing power, people need to put a greater share of their savings into precious metals.
The miners
Last time out, gold miners Wheaton Precious Metals (WPM) and Agnico Eagle (AEM) were called a gift from God; both are up about 30% since. They are still cheap if the direction of gold and silver over the decade is right, and cheap because they are indestructible. Penny dreadfuls and lower-quality companies could give better returns, but at the cost of higher risk, higher volatility, and real work. Those two names got named because the audience is large and most of it, whatever they think, will not do the work or take the risk needed to move down the quality chain. A responsible commentator's job is to save them from themselves.
If the dollar loses 75% of its purchasing power and gold holds its purchasing power, investors can make money just in beta - the outperformance of the precious metals sector against the broad market - without chasing alpha. In the 1970s, the gold price ran 25 or 26-fold, and the Philadelphia Gold and Silver index, then the equivalent of the GDX, rose 49-fold. Is 49x a reasonable reward over 10 years? This is not a forecast that gold goes 49x. It only follows if you accept that US dollar debasement is inevitable given quantitative easing and artificially low interest rates.
