The gold-to-silver has broken down below 100. Here’s why the metals are on the move to start the week…
Silver is wasting no time at the start of this week.
In fact, it started last night.
On Sunday, Fed Chair Jerome Powell was on the CBS television show 60 Minutes to discuss a wide number of monetary issues, including negative interest rates.
Suffice to say this “interview” was well scripted and each word carefully crafted.
Here’s the transcript of the interview, but let’s hone in on just one part of Powell’s latest prime time showing to analyze some of the Fedspeak used to deliver a finely tuned message – Negative Interest Rates (bold added for emphasis):
PELLEY: In the early days of the crisis in this boardroom, you and the committee lowered interest rates essentially to zero. Would you lower them further into negative territory, which the president has suggested is a good idea?
POWELL: So around this table during the last crisis and during the recovery, we looked at negative interest rates. And it’s something we decided not to do. We used other tools instead. And those tools involved forward guidance about the federal funds rate and also lots of asset purchases or quantitative easing as it’s often referred to.
I continue to think, and my colleagues on the Federal Open Market Committee continue to think that negative interest rates is probably not an appropriate or useful policy for us here in the United States.
PELLEY: And why not? The President seems to think it would help.
POWELL: The evidence on whether it helps is quite mixed. And the issue is people would be depositing money in the bank and that money would be shrinking. They’d be paying interest to put their money in the bank. So it’s not a particularly popular policy, as you can imagine.
But in addition, it can also tend to depress the profitability of banks, which makes them likely to lend less, which weighs on economic growth. So I would just say it’s not at all settled in, you know, in economic analysis that negative rates really add much value.
I’ll stop there.
Talk about planting a seed, or what many call “floating a trial balloon”!
And to think, Powell isn’t talking about negative rates for commercial banks and what not, but rather, he’s talking about negative interest rates for retail depositers, a.k.a. you and I!
Here’s the thing too: He didn’t flat out say negative rates were not coming, but rather, he left a ton of doubt as seen in just a few paragraphs above, and with this doubt, it becomes easier for the Fed to say, “well, we need to make sure negative rates actually don’t help us achieve our dual mandate”, or something to that effect.
Finally, and this is huge, but technically speaking, the Fed doesn’t even need to go negative.
Because of “real interest rates”, that’s why.
That is to say, that deposit in the bank may earn 0.1% interest for example, but if the things people buy are increasing in price at a faster rate, then interest rates are already negative.
In fact, the latest CPI showed significant food price inflation.
Needless to say, silver is on the move, big time:
I think the people are finally starting to see that everything taking place right now with all of this forced financial repression is inflationary, not deflationary, and silver is the absolute best asset to own in that environment, in my opinion.
Well, besides from being money, not only is silver a great, and currently cheap, inflation hedge, but if you believe there has been an active gold & silver price suppression policy engaged upon by governments and central banks around the world, then silver’s price has been artificially held down, which means that as the cartel loses control of the physical gold & silver markets, silver will have a ton of catching up to do.
The gold & silver ratio is under 100:
It’s safe to say we’ve left that dreaded sideways channel of 110-115 behind, and we did it with an authoritative break-down.
The problem is, for the cartel, I think a lot of deeper pocketed investors are going to get very excited when gold breaks-out above $1800:
I mean, we could be talking about all-time record highs very soon, and in all likelyhood, the cartel would like for those all-time record high dollar prices to be an afterthought.
So we’ll see.
I do think the precious metals, and especially silver, are breaking out here.
Let’s watch platinum for clues:
Platinum has seen some investor reluctance, but I do think platinum is beginning to take on an inflation hedge / flight-to-safety bid along with all of the precious metals.
Palladium, in my opinion, will benefit as well:
It also comes down to what is available and what is reasonable in one’s area.
Not all investors have access to the four precious metals equally.
But I digress.
To me, copper has been signaling the end of the era of deflation:
The cartel’s going to need those copper mines cranking out silver too.
But, as I’ve asked before, if they’ve lost control of the gold & silver market, then at this point, would they even care?
Crude oil is moving higher to start the week:
I think we’re seeing a little fear premium kicking-in to the price of oil.
Besides, once the world begins to live with this pandemic, well, the Middle East is still a mess.
I keep seeing people referring to the Dow-to-Silver Ratio, so it will be interesting to watch the Dow this week:
It’s been all eyes on the Nasdaq lately, but precious metals investors, including gold investors, often times not only look at the ratio to the Dow, but execute investing strategies off of that ratio (such as the Dow-to-Gold ratio) much in the same way silver stackers are preparing to take advantage of the gold-to-silver ratio arbitrage.
The way this week is starting out, I would not be surprised to see a spike in the VIX before it’s all over:
Powell gives a speech tomorrow morning, and I’m sure the markets will be parsing his every word with a fine-tooth comb.
If the stock market rolls, I’d expect yield to rollover too:
One day, however, the day of reckoning is coming for the bond market.
To me, it’s amazing to see there are still dollar bulls out there:
The strong dollar, relatively speaking, or at least the stable dollar, around, call it, 100 on the DXY, is the one thing masking all of the loss of purchasing power.
That said, once the dollar cracks, consumer price inflation’s really going to sting everybody, especially users and holders of dollars.
Though why people want to hold on to rapidly devaluing dollars is beyond me?
Bottom line as we find ourselves here this beautiful Monday in mid-May?
Silver is indeed one of the cheapest assets in the entire planet.
Trump & the Fed are floating negative rate trial balloons.
I don’t focus on the technicalities of negative rates.
Because I understand about “real rates”.
Which are already very negative.
Gold has been and is bid.
Gold’ll continue to be.
And now silver?
Is and will.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.