The Biden years are here. And as much deficit spending as we’ve seen over the last 12-plus months and as low as interest rates have been for so long now, there seems an excellent chance the high-spending, low-rate environment may only intensify from here courtesy of the president’s ambitious agenda.
By now you likely are familiar with President Biden’s recently proposed $6 trillion budget for fiscal year 2022 – a record sum, by a large margin. There are a lot of components and longer-term implications to his fiscal plan, including the fact that all annual budget deficits for the next 10 years would run well into the trillions and that the federal debt would climb nearly 80% from its present level.
Factor in Federal Reserve Chairman Jerome Powell’s disinclination to raise interest rates – despite some “noise” to the contrary – from their persistent record lows, and you have a climate that seems broadly optimal for the strengthening of both gold and silver.
I often speak in terms of scenarios that seem ideal for precious metals, in general. That said, there are times when the outlook for one metal in particular may seem especially bright. I believe such a time is before us. And I think the metal worthy of some extra consideration right now is silver.
There are, in my view, three specific reasons why silver presents outsized potential relative to gold right now:
- Its capacity to hedge particularly well against the potential dollar-debasing effects of expansionary fiscal and monetary policy.
- Silver’s indispensability as an industrial metal, which could translate to even greater demand for the metal amid the global green energy push.
- The possibility silver could be undervalued, presently.
To be sure, in addition to also demonstrating the potential to thrive during periods of expansionary fiscal and monetary policy, gold tends to have a better long-term track record relative to silver. For instance, since the beginning of the millennium, gold has appreciated 550% to silver’s 460%.
But retirement savers who look past silver entirely in favor of the yellow metal could be doing a disservice to their precious metals IRAs and other savings. Silver has demonstrated the capacity to strongly outperform gold during select periods. The global financial crisis and pandemic-plagued 2020 stand out as two particularly good examples of this. And I believe we could be at the outset of another such period, one in which the three pro-silver factors noted above act synergistically to trigger what could be a significant silver surge.
Expected High-Spending/Low-Rate Environment Under Biden Could Energize Silver
Through the years, both gold and silver have demonstrated the capacity to respond favorably to certain policy conditions that have been suggestive of money supply expansion and possible dollar weakness. The fact is that many see physical metals as safe-haven assets and will flock to such assets in an effort to help defend their savings from fiscal and monetary policies they suspect could result in dollar debasement.
The current spending posture of the Biden administration has some experts especially optimistic about gold’s prospects in that regard. “You can’t have a better environment for gold,” currency strategist Adam Button recently told Kitco News. “The government wants to spend more money and the central bank is going to keep interest rates low.”
But as it happens, a government that engages in profligate spending in conjunction with a central bank that seeks to keep rates as close as possible to zero can create an environment that’s especially good for silver, as well. There are, in fact, examples in recent history of silver markedly outperforming gold in such environments.
One of the best such examples occurred during the 2008 financial crisis. In an effort to help the country get to its feet, the U.S. government put the dollar printing press into overdrive. In years 2009, 2010 and 2011, deficit spending surged to what at that time was the highest levels in U.S. history. Additionally, in November 2008 and again in November 2010, the Federal Reserve initiated the first-ever rounds of quantitative easing (QE).
Against this backdrop, gold soared 160% from November 2008 to August 2011. Impressive, to be sure. But silver did better…a lot better, climbing 340% over the same period.
We’ve seen this happen other times, as well. As the pandemic’s economic fallout quickly spread last year, both the Federal Reserve and U.S. government went “all in” on emergency monetary and spending measures. As they did, gold strengthened, but silver strengthened more. From April 2020 to August 2020, gold appreciated 27% while silver rose nearly 100%.
President Biden has been very transparent about his plans for a record spending agenda, as well as his desire to see the Federal Reserve keep rates at record lows for as long as possible. Such fiscal and monetary environments have been good for gold – and great for silver – in recent years. There’s no way to know for sure if silver will thrive again as it has before under these conditions. But given the degree to which so many appear to see silver as a valuable safe haven, it is a possibility worthy of consideration, in my view.
Goldman Sachs: Silver Is “a Turbocharged Version of Gold” Due to Green Energy Role
Silver’s demonstrated potential to thrive especially well during periods characterized by both drastically accommodative monetary policy and free-spending fiscal policy certainly is a compelling reason for retirement savers to give the metal a serious look right now. But it’s hardly the only one. As a matter of fact, some experts are even more enthusiastic about a prospective silver opportunity based on the metal’s industrial cruciality.
You already might be familiar with silver’s property as a premium conductor of heat and electricity. It is because of this property that industrial buyers of silver account for more than 50% of the metal’s demand each year.
That by itself is noteworthy when you consider we’re in the midst of a global economic recovery. But the implications of silver’s high level of thermal and electrical conductivity could be particularly significant for the worldwide green energy movement – which, by definition, is heavily reliant on the types of energy transmissibility to which silver is uniquely conducive.
One person who’s particularly excited about silver’s prospects based on what the metal could mean to the green energy movement is Jeffrey Currie, global head of commodities research at Goldman Sachs. Earlier this year, Currie appeared on CNBC’s “Fast Money: Halftime Report” wherein he did speak optimistically about the outlook for precious metals in general based on the anticipated fiscal and monetary climate. However, during this same appearance, Currie also emphasized what he sees as silver’s particularly robust future resulting from the widely predicted green technology explosion. In fact, the enthusiastic Currie referred to silver as “a turbocharged version of gold” specifically because of its central role in the solar energy industry, which is expected to grow by leaps and bounds in the coming years.
As head honcho of commodities research at Goldman Sachs, Currie’s take on silver is one to be respected, in my view. But he is by no means the only insider who very much likes what he sees in silver right now. Analysts at Canadian Imperial Bank of Commerce (CIBC) recently issued a report in which they indicate their great optimism over silver’s future due specifically to the metal’s importance to the solar industry, an industry the bank sees potentially doubling in size by 2025.
“The continued focus on renewable energy worldwide, as well as re-engagement and leadership from the U.S., provides a favorable backdrop for future growth in solar power,” CIBC analysts wrote. “Historically, silver has tended to outperform gold during bull cycles for precious metals, and we believe this solar narrative could be an important driver in both industrial and investment demand for the metal.”
CPM Group: Gold-to-Silver Ratio Could Drop to 35, Trigger 50% Silver Price Jump
Goldman Sachs’ Jeffrey Currie is so high on silver’s prospects he sees it as “a turbocharged version of gold.” Given that glowing assessment, there surely is no way silver could be at all undervalued right now…is there?
As it turns out, some experts indeed see silver as relatively undervalued right now despite its robust outlook. Commodities research and consulting firm CPM Group is one example.
One of the more popular metrics for measuring the relative value of silver is the gold-to-silver ratio. The ratio merely is an indicator of how many ounces of silver can be purchased by one ounce of gold. A higher ratio implies cheaper silver and suggests the metal could be poised for some appreciation in price. The ratio presently is around 67. Last April, it was bouncing around 120 at all-time highs. The drop from 120 to 67 has corresponded to a near-100% increase in silver’s price.
But CPM’s assessment of the metric suggests it could have much further to fall – and silver could climb a good deal higher from here. “The ratio has corrected from those record high levels but is still at elevated levels,” CPM analysts note, “suggesting more potential upside for silver prices relative to gold.”
It’s worth noting CPM does not see silver that appears undervalued in terms of the gold-to-silver ratio as being an appropriate purchase on that basis alone. That is, while CPM regards the metric as a useful tool, a favorable ratio figure that’s unaccompanied by positive fundamentals – such as the present fiscal and monetary environment as well as the robust outlook for industrial silver – would not register as a “buy” of silver in their opinion.
“If silver is undervalued relative to gold and the fundamentals [also] line up,” CPM notes, “the upward move in silver could be quite explosive. That is where we seem to be at this time.” CPM analysts project a drop in the ratio to 35 “before stabilizing or moving higher.” In their opinion, such a drop would correspond to a 50% increase in the price of silver.
My View: Astute Retirement Savers Recognize the Potential of Both Gold and Silver
It’s not unusual for retirement savers who decide precious metals could be for them to subsequently spend a lot of time weighing the respective merits of gold and silver, with an eye to ultimately purchasing one or the other.
Speaking for myself, I don’t engage in such exercises. That’s because I believe each metal has potentially beneficial features. Accordingly, I do not think in terms of gold or silver; instead, I think in terms of gold and silver.
On that note, even as I’ve spent time in this article highlighting what I think is potentially a sound silver opportunity, there’s no disputing that there remains much to like about gold. The same anticipated fiscal and monetary conditions many observers think will help propel silver higher in the foreseeable future should also benefit gold, in my opinion. Moreover, gold’s long-term record of appreciation generally is superior to silver’s. As I noted at the outset of this piece, gold has risen 550% to silver’s 460% over the last two decades.
To me, however, these are not arguments for gold over silver. As I mentioned a moment ago, each metal brings something to the picnic unique to itself. In the case of silver, its possible undervaluation presently, along with its potential to strengthen both as a monetary and industrial metal right now, positively distinguishes the white metal from gold. For retirement savers inclined to precious metals in the first place, it’s an asset profile worthy of notice, in my view.