Heading into a tumultuous election with a second wave of Covid cases claiming lives in America and abroad, the argument for owning precious metals has never been stronger. Hard assets are not only a growth investment but also a crisis hedge during times of peak uncertainty.
The latest data shows that 55% of registered voters expect violence to increase in the U.S. following the November 3rd presidential election. Regardless of who wins the election, social instability will be a reality and your investing strategy must adapt to this.
At the same time, runaway inflation is already a tangible force as consumers are paying a hefty premium for the most basic necessities. Surely you’ve noticed food prices going up in recent months – this is what happens when governments use money printing as their go-to strategy year after year.
In this dark scenario, the smart money is turning to precious metals as a safe haven from the coming political and economic storm. “We’re buyers of gold,” says Wells Fargo head of real asset strategy John LaForge. “We view gold at these prices as a good buying opportunity and, as evidenced by our 2021 year-end targets, expect higher gold prices.” LaForge cited low interest rates (the Fed made it clear that they’ll remain low through 2023 at least) as well as quantitative easing and the “excessive” money supply. With those factors in mind, the Wells Fargo analyst concludes that the “fundamental backdrop looks good” for gold.
It’s not the first time Wells Fargo has made a bullish call on gold. In July, Wells Fargo analysts raised their forecast and predicted that gold could rise all the way up to $2,200 to $2,300 by the end of next year. Those numbers seem pretty tame today as the gold price already touched $2,075 per ounce in August.
Goldman Sachs also sees a weaker dollar as a driver of higher commodities prices. Thus, Goldman analysts expect the average price of gold to reach $2,300 per ounce in 2021. Naturally, I expect silver and gold to rise in tandem during the next leg up in commodities.
Again, if you want a clue as to how metals will move, keep an eye on the dollar. “We see trends in rising social need, alongside investor complacency over inflation, as raising the political risks of policy with an inflationary bias,” the Goldman analysts wrote. “Accordingly, we expect an increased rotation into commodities as an inflation hedge.”
How dramatic will the dollar’s decline be? Stephen Roach, a senior fellow at Yale and former chairman at Morgan Stanley Asia, recently predicted that the dollar is headed for an “extremely sharp” decline of 35% by the end of 2021.
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35% might sound dramatic, but even if the U.S. dollar declines by one-third of that next year, it would send the economy into a tailspin. Folks who hold most of their wealth in cash will struggle, but precious metals and the companies that mine them will thrive in that environment.
All precious metals will roar higher, but silver’s move will be a once-in-a-lifetime event. Keith Neumeyer, the CEO of First Majestic Silver (TSX:FR, NYSE:AG), says, “Eventually the system is going to crack. The supply demand fundamentals for silver are going to get so overwhelmed it’ll break any bank that wants to be on the short side.”
Mr. Neumeyer is 100% right and I pity anyone who attempts to short-sell silver now. That would be tantamount to fighting the government (which will print massive amounts of fiat currency no matter who’s in the White House) and also fighting the Fed (whose balance sheet just surged to a record of $7.18 trillion).
Mining companies like First Majestic are benefiting tremendously from this uniquely bullish environment for precious metals. As the silver price heads higher, First Majestic’s value proposition grows exponentially because the company purchased its assets at a low price.
Even amid political turmoil and a global pandemic, First Majestic has remained ahead of schedule with robust, consistent silver production. Impressively, the company’s La Encantada mine produced 978,416 silver ounces during 2020’s third quarter, representing a 92% increase from the prior quarter and the second highest quarterly production since 2014.
Another one of First Majestic’s high-production silver assets, Santa Elena, is expected to see higher grades rates in the fourth quarter of 2020 as additional workers have recently arrived to site to assist with increasing underground ore production.
By holding First Majestic stock shares, you’ll be ready for whatever comes in the completely abnormal “new normal”: economically crippling lockdowns, unending monetary stimulus, political and social instability, all building towards a silver rush of epic proportions.
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