An Opportunity in Silver
The Federal Reserve is signaling that it has no intention of shrinking its balance sheet or increasing short-term rates through the end of 2022.
This assurance, combined with the recent passage of a $3.5 trillion U.S. spending blueprint, means that inflation likely won’t be transitory. As such, an increasing number of economists expect inflation to establish a floor above 3%, which is well above the Fed’s 2% target. And that’s potentially good news for metals investors.
The fear that an equally huge ($1.2 trillion) infrastructure spending bill will be passed by the end of September is another of the key factors supporting gold and industrial metals prices right now. Meanwhile, gold’s sister metal, silver, has largely been ignored in recent weeks as investors focus most of their attention on the potential for rising inflation to boost the yellow metal.
However, if inflation does in fact tick higher as expected, other precious metals beside gold should begin to price in the higher expectations. Among these is silver, which is coming off an 18% slide from its May 18 intermediate-term price peak.
Since hitting a low in August, silver is trying to establish an intermediate-term low and could be on the cusp of another meaningful rally—especially if the market fears that inflation is truly becoming an entrenched reality (as opposed to a temporary phenomenon).
The anticipated return of normal trading conditions this month after next week’s Labor Day holiday—the end of the traditional summer vacation season—will likely provide some valuable clues as to just how much inflation is actually weighing on the minds of participants.
In anticipation of an inflation-driven asset reallocation among money managers this month, I’m recommending that speculators purchase a small position in the iShares Silver Trust (SLV), which is my favorite vehicle for tracking silver prices.
While it’s admittedly a speculative trade (currency-related risks persist and SLV hasn’t yet fully cleared its 25-day moving average), I view the risk/reward ratio as attractive enough to warrant some nibbling in SLV.
What to Do Now
Buy a half position in the iShares Silver Trust (SLV) here or on minor dips. I’m going to recommend using an initial stop-loss slightly under the 21 level (intraday basis) on this trading position. BUY A HALF