Jobs and Prices – The One-Two Punch That’s Bullish For Silver
Here's what's happening and what's next ...
U.S. employers added way more workers than expected in March. Inflation accelerated instead of easing – even as wage growth slowed.
And all those anticipated U.S. Federal Reserve interest-rate cuts – as many as six were expected as 2024 began – keep falling in number and getting pushed later and later in the year.
And that’ll extend the hot run for silver, says Peter Krauth, a friend, author and former colleague who now runs the Silver Stock Investor, an investment publication focused exclusively on the “common man’s precious metal.”
“Gold and silver have been on a blistering run, especially since late February,” Peter told me in an interview last night. “I think the market is cluing us in that the Fed really is stuck. If it lowers rates – a corner that Fed policymakers kind of painted themselves into – and inflation runs high, that will bring us back towards negative real rates (returns from rates that are below inflation). Precious metals do well in that environment, partly because the opportunity cost of no yield essentially goes away.”
Back in February, when I interviewed Peter for a Stock Picker’s Corner SPC special report (and silver was in the low $20s), he said the “other precious metal” could hit $30 an ounce by the end of 2024. And he said there were catalysts in place that – with the right splashes of the wrong market changes – could rocket it to $300 or beyond in the years to come – a scenario he detailed in his popular 2022 book “The Great Silver Bull: Crush Inflation and Profit as the Dollar Dies.” (Disclosure: As an Amazon Affiliate, we may earn commissions from qualifying purchases on Amazon.com.)
The day before we published our report, silver was trading at about $23.80. As I spoke with Peter last night, it was at $28.03. That’s a 17% surge in two months.
Now, as dedicated Wealth Builders and anti-Wealth Killers, we focus on the long run – meaning we don’t gear our strategies toward quick-hit gains. But we’ll take what the market hands us – especially if the profits are affirmations of our analysis.
Indeed, it’s the “what comes next” that really matters. And that’s why we’re bringing you this update in today’s issue of SPC.
Unpleasant Surprises
Let’s start with the latest economic reports.
On Friday, a U.S. Bureau of Labor Statistics (BLS) report said employers added 303,000 jobs in March – way more than the 205,000 analysts expected. The unemployment rate fell from 3.9% in February to 3.8% in March.
Those numbers could mean that “rather than slowing down, job growth might be holding steady,” said Nick Bunker, the North American economic research director for Indeed Hiring Lab, an analytics venture that specializes in employment data. “The labor market is strong, and that’s a good thing for all of us.”
However, annual wage gains slowed from 4.3% to 4.1% month-over-month. That slowing was viewed as good news for potential rate cuts.
But (as it turned out) it wasn’t good news when the latest inflation report was released Wednesday.
A BLS report said the Consumer Price Index (CPI) jumped to 3.5% for the 12 months that ended with March. That was a significant jump from the 3.2% rate for February; in fact, it was the highest annual gain in six months.
Economists were looking for an annual inflation rate of 3.4%, according to FactSet consensus estimates.
It’s the fifth month in a row that inflation came in higher than expected.
The real problem is that so-called “core” inflation – which excludes more-volatile food-and-energy prices – was hotter than expected, too. It came in at 3.8% for March, up from 3.7% in February and higher than the 3.7% forecast.
On a three-month annualized basis, core inflation is running at 4.5%, Sarah House, a Wells Fargo managing director and senior economist, told CNN.
But – as we’ve been telling you folks over and over – consumers are numb to the inflation numbers. They just know that prices are a lot higher today than they were four years ago – and those prices inflict pain day after day after day.
House, the Wells Fargo economist, really gets it.
“Prices are not going to revert to where they were, so the best we can look for is a moderation in the rate at which prices are going up,” she told CNN. “You see some stabilization in some key areas like the grocery store; but overall, you’re still going to see consumers bothered by the current price environment for some time.”
To Cut or Not to Cut – Definitely the Question
U.S. stocks got clobbered Wednesday: the Dow Jones Industrial Average plunged more than 500 points, while the S&P 500 and the Nasdaq Composite Index each suffered 1% haircuts.
The catalyst was simple: This hotter-than-expected – and persistent – inflation keeps pushing Fed rate cuts further and further into the future.
“You can kiss a June interest rate cut goodbye,” Bankrate Chief Financial Analyst Greg McBride wrote on Wednesday.
Once investors saw the inflation report, the probability of a June rate cut sank to 21%, down from 53% on Tuesday and 73% last month, according to the CME FedWatch tool.
Atlanta Fed President Raphael Bostic – a voting member of the central bank’s policymaking Federal Open Market Committee (FOMC) – told CNN that we probably won’t see the first rate cut until summer.
And after a hawkish rate-boosting campaign that has interest rates perched at a 23-year high, that matters.
A Different View
Peter has a very different take – one that speaks to his longer-term scenario for a big surge in silver prices.
“You know, Bill, I think there will be tremendous pressure on the Fed to cut, even if it’s in the longer-run,” Peter told me. “And we haven’t even considered a recession yet. The chart I’m sharing with you here (see it just below) shows projected U.S. interest payments. Cuts or no cuts, it’s ugly.”
That brings us to an intriguing juncture for precious metals like silver and gold, Peter said.
“If the Fed doesn’t cut, that will be like admitting inflation is still too high – which is also positive for precious metals,” he said. “So, it’s win-win for gold and silver.”
Then there’s the supply-and-demand dynamic – which Peter believes is one of the catalysts helping push silver prices higher.
“I think the market is starting to figure out that silver demand is likely to continue outpacing supply for some time yet,” he said. “We’ve seen structural deficits for the past four years straight. The Silver Institute is expecting several more. My research shows that the three major futures exchanges – the COMEX, LBMA and Shanghai – have all seen their silver inventories drop about 40% over the past three years.”
(Peter refers to these as “secondary inventories.” They are separate from the annual silver supply from mining and recycling.)
The same has happened to silver ETFs globally, he said.
“My view is that large silver consumers are buying long contracts and silver ETFs, then taking delivery,” Peter said. “That helps explain why the silver price didn’t rise in the face of ongoing deficits. But these inventories are being drained, and I think there may be 12 months to 24 months left before they run out. Interestingly, TD Bank just put out a report with essentially the same conclusion.”
Peter’s Forecast for Silver
So, when it comes to silver, what should we look for next?
“I think the start of this year is a strong indication of what to expect over the next few quarters,” Peter said. “I believe gold, which silver follows, is in a sustained bull market. One of the best indicators is when gold hits new all-time highs in all major currencies. Until recently, there was one last holdout, the Swiss Franc. But that’s no longer the case, with a new all-time high in the Swiss Franc as well.”
“Now, Bill, a near-term pullback would not surprise me,” he explained. “After all, the current rally that you and I have been watching, analyzing and talking about … well, we’ve seen blistering gains – and they’ve been compressed into a short time. Still, I think silver could sustain $28 in the second quarter, and maybe $30 to $35 in the second half of the year.”
A price of $30 an ounce or higher would mean another of Peter’s predictions – the one he made here for you – came to pass.
If and when we hit that target, we’ll turn our attention to Peter’s bigger target … the $300 price prediction that’ll require a number of catalysts to come into play all at once.
I’m also working on several other special commodities reports, as well as a special report on “Wealth Builder Inflation Tips” for all of our SPC friends and followers.
In the meantime, you can revisit my original interview with Peter here.
So stay tuned … we’ll keep watching all of this for you.
P.S. Sometimes Substack emails end up in the junk folder - not where they’re supposed to be. To make sure you never miss an alert, you can download the Substack app and peruse each issue of SPC at your leisure.