In the second half of this year, people were saying that the bull market in silver was firing on all cylinders. I was telling them that it hadn’t even started yet. What the commentators were seeing was really just the first warning sign that silver shorts were going to get demolished.
You’d think the short sellers would have a basic grasp of economic principles, but apparently they either don’t know or don’t care. On the supply side, silver was already in its fourth year of production declines even before Covid-19 hit.
And on the demand side, it’s been hard to get physical silver bullion unless you know where to go. My personal favorite source in 2020 is the Bullion Store, which is owned and operated by none other than First Majestic Silver (TSX:FR, NYSE:AG).
There really is no other logical scenario than the silver price going significantly higher from here. Federal Reserve Chairman Jerome Powell literally just said that the central bank is “committed to using our tools to do what we can, for as long as it takes.”
We all know exactly what that means: rock-bottom bond yields through 2023 at least, coupled with incessant money printing until we see 1970’s-style inflation. The Fed is pushing forward with its $120 billion-per-month QE Forever program, which has already expanded its balance sheet to over $7 trillion, including $4.4 trillion in Treasury securities.
Under these conditions, the American consumer is victimized and the 60%-40% stocks-and-bonds investing strategy is rendered null and void. At the same time, mineral assets fetch a high premium. Silver doesn’t just keep pace with rising inflation; history shows that silver moves fast and far in times like this.
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These factors, combined with the coronavirus lockdowns, have catalyzed physical silver buying and will continue to do so. Sales of coins, rounds, and bars are much higher this year than they were in 2019.
In H1 of 2020, the U.S. Mint, Canadian Mint, and Perth Mint collectively sold 34.9 million ounces of silver. That’s a huge jump compared to the 24.1 million ounces sold in H1 of last year. Clearly, the Great Silver Rush is gaining momentum and the bulls are taking no prisoners at this point.
The upshot of all this is a reward-to-risk scenario that could best be described as asymmetric: minimal downside potential with practically unlimited room for upside. Resource mavens like Eric Sprott, who’s buying CDN$78,000,000 worth of First Majestic Silver shares, evidently see the growing value of silver and those who mine it.
All the signs point to higher prices in silver and in First Majestic stock. For one thing, America’s embroiled in a tight race amid a contentious election year. There’s plenty that could go wrong: missing mail-in ballots, contested results, ill-equipped state election systems failing at the worst possible time.
The last thing people will want is overpriced “risk” assets when the you-know-what hits the fan. You can count on investors turning to metals and miners, just as they’ve done so many times before.
Strategically, the right move isn’t to wait until it’s already happening. Instead, you can start accumulating physical bullion as well as First Majestic shares, not just for the protection against imminent volatility but for the real start to the multi-year run in silver and miners.
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