While most central banks have been aggressively hiking rates since last spring, one of the few holdouts leaving rates unchanged has been the Bank of Japan. It was only a couple of months ago, right before the whole FTX mess blew up, that the Yen cratered to 32 year lows. This morning, around 4 am New York time, the BoJ announced their decision to widen the Yield Curve Control band, although they didn't adjust any of their short term policy rates or the monetary base. By widening the trading band in their 10 year government bond, they went from -0.5% to +0.5%.
This is being perceived as tightening and joining along with the chorus of all the other central banks. An article on Zero Hedge today states that 'rising yields on JGBs will pressure more Japanese capitol to return home' or not leave the country. Already, the Yen has jumped up about 4% since this morning.
While the Dow Jones index ticked up by 113.98 points (as of writing) since this morning, overall the index is down 889 points over the last 30 days. Oil remains relatively unchanged but Bitcoin seemed very happy with the news from the BoJ, rising 2.54% or $411.83 to $16,860.
The big winners today are precious metals. Gold added about $30 to $1,818 after dropping below $1,800 as shown in the chart below, courtesy of Kitco.com.
Silver is the metal I'm keeping an eye on as I expect the metal to outperform gold in the coming bull market. I'm paying close attention to the silver to gold ratio. Silver is extremely volatile and as a result, there are times when the ratio can get warped, such as in the spring of 2020 when the ratio surpassed 120:1, something that had never happened before.
Historically, the ratio has been about 15:1. Today, the ratio is at 75.26:1. So, it takes 75 ounces of silver to buy one ounce of gold.
It was at 95:1 on September 1 of this year. The ratio has closed in by 20 ounces in just 3 months! The trick for silver hodlers is to sell their silver in exchange for gold when the ratio comes very close or even surpasses the historical ratio. This would provide a huge discount on gold.
Today's example of silver's volatility didn't disappoint and the $1.20 increase shows that compared to gold, which did equally well (up by 1.76%), outperformed gold with a 5.2% increase. This is what silver hodlers are looking for.
There's also a 194 million ounce silver deficit for this year. I wrote about that in a previous post you can check out here. I am also seeing parallels with rising interest rates in the late 70s and early 80s but compared to today's environment, the big difference is the speed of the increases since last spring. According to Mike Maloney, they have been the most drastic and aggressive on record (See post here).
Another key point: In January 1980, when gold and silver went to record highs, the US debt was about $800 Billion and the worldwide debt was much smaller. Fast forward to today and the US national debt has topped $31.445 Trillion.
That's about 40 times the 1980 amount.
That's got me thinking. If silver hit (about) $50 in 1980 when the debt was $800 Billion, then would it be safe to assume that silver has the potential to jump by 40 times in a sudden peak before coming back down again as it did in 1980?
This would suggest a possible silver price of $2,000 and imply a gold price of $32,000 per ounce. This is a ratio of 16:1 but what if silver overshoots by one ounce or even 2 or 5, or 6 and the ratio becomes 10:1?
$3,200 per ounce silver. Sounds fantastic, too hard to believe.
In 2020, Bitcoin going to $67,000 was fantastic and hard to believe. Even now, it's still hovering around the $17,000 mark. Fantastic!
In the last 2 weeks, the biggest central banks have all raised rates, including the Bank of Canada, Bank of England, Federal Reserve and the European Central Bank. Each raised their key lending rates by 50 basis points or half a percent. Are we going to see a repeat of 1980 in 2023? Higher rates affected real estate badly back then. Another article on Zero Hedge this morning sounded the alarm on the housing market, 9 straight months of declines in building permits. The rate increases started some 9 months ago.
Coincidence? I'll let you decide.
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