For the past decade, silverbugs have steadfastly held on to their belief that silver would eventually climb to three digits and beyond. In all that time, silver experienced a few head fakes, including in the summer of 2020, when silver couldn't pass $30 per ounce while gold hit a new record high of $2170. Gold is still doing well, closing 2021 just under $1830. Yet, silver continues to lag, closing the year at $23.30, having climbed about a dollar an ounce between Christmas and New Year's.
With records deficits, world debt surpassing $70 trillion USD, Zero and negative interest rates of the last decade, you'd be forgiven to assume precious metals would experience a meteoric rise. While Bitcoin and Etherium have hit new highs this year, the same can't be said for precious metals. It' almost as if precious metals have become a laughing stock but maybe, just maybe, silver and gold will get the last laugh after all.
In 1972, US federal debt stood at $427 billion and the debt to GDP ratio was just 34%. The Federal Reserve central bank up to this point, designed to encourage full employment had easy money policies in place. This in turn sparked a sudden rise in inflation beginning in late 1972. The great inflation of the 1970s had begun and would not end until the early 1980s. Incidentally, US federal debt hit $908 billion by the end of 1980.
Clearly, this was all related to Nixon's uncoupling of the dollar to gold which then brought on the oil embargo ('73 - '74) by the Saudis who were expected to be paid with dollars backed by gold in exchange for their oil. A deal was eventually made (to save the dollar) wherein the USA would provide military protection for Saudi Arabia, which still goes on to this day but is showing signs of fracturing.
In 1972, interest rates were about 7%. By 1980, interest rates skyrocketed to almost 20%. This severe interest rate shock impacted industries sensitive to fluctuating rates, namely the housing industry and the automotive sector. My own parents lost our family home to high interest rates in 1981. On the street I lived on as a young teenager, I can recall half the homes emptying out along with our own. It was a difficult time for my family but we somehow managed.
Many 'experts' will feed you BS that rising interest rates are bad for precious metals. I've heard their BS so many times it hurts my ears. If this were true, then please explain how gold went from $35 an ounce in 1972 all the way to $800 by 1980 and all while interest rates went from 7% to almost 20%?
(Gold closed 2021 at $1829.80, rising about $40 from its low 2 days prior)
In 1972, silver started the year at about $1.40 and closed the year at $2.05 per ounce. Once again, if interest rates are bad for precious metals, then all the 'experts' out there please explain how silver climbed from $2.05 at the end of 1972 to $50 per ounce by 1980 while interest rates climbed to almost 20%?
Fast forward to December, 2021 with FED chairman Jerome Powell stating at their latest FOMC meeting that inflation was not 'transitory' after all and that interest rates were going up in 2022 along with tapering of financial asset purchases. This is sure to hit the stock market in a very bad way and will likely fuel a recession.
Another thing to point out is the Implementation of Basil III which is supposed to go into full effect on January 1, 2022. The previous Basil I and II implementations brought on recessions so I fully expect a recession this year and a massive liquidity squeeze. It relates to banks now having to own /allocate gold as a tier 1 asset in their reserves. In other words, paper assets without real backing may be excluded, dwindling bank assets.
With interest rates expected to rise sometime in the new year, mortgage holders will take the biggest hit. This also will seriously impact bank assets. Imagine a mortgaged property on the books valued at $500,000, a severe recession or depression hits and suddenly the book value drops by as much as 90% as happened during the great depression of the 1930s. We may see some very big banks fold in coming years as Lehman Brothers once did. As interest rates continue to rise, lending too will be severely impacted, another big hit for the economy.
In 1972, the debt to GDP ratio stood at 34%. In 2021, it surpassed 122%. In 1972, the federal debt was at $427 billion and as of writing, the debt is just under $29.5 trillion. This is insanity at best. The truly sad part is that all the money that's been created since 1971, when the dollar / gold decoupling occurred, is all fiat and backed only by our confidence in it. My confidence has been wearing thin for years now.
Whenever a country's debt to GDP ratio surpasses 100%, it's safe to say that it's downhill from there. 2014 was the year the USA surpassed 100%. Things weren't looking good prior and things have only gotten worse since 2014.
For the past 5 years or so, Bitcoin has 'stolen' some of the shine from silver and gold. Will 2022 be the year precious metals regain their shine on their way to new highs? With everything that's going on, it's a safe bet to say the answer is YES! Silver still remains the only commodity to not break its 1980 high. Mortgages have gone up. Concert and movie tickets have skyrocketed. Food inflation is now pinching our pockets. Gasoline is at all time highs. All while the spot price of silver remains below $24 an ounce.
I don't have a crystal ball but all roads lead to much higher prices for silver going forward. Just as it was once unthinkable to see Bitcoin hit $1,000, let alone $10,000 or $30,000 or $64,000, we may eventually see silver reaching triple and quadruple digits going forward. Silver is not only a true monetary metal but is also one of the most prized metals used in industry. In fact, silver is disappearing at an alarming rate due to industrial consumption, thereby making it rarer than ever against gold. Traditionally, the mining ratio has been 15 to 16 ounces of silver for every one ounce of gold. It's now believed to have dropped below 10:1 and possibly much lower.
While I support crypto-currencies as they have given the central banking cabal a run for their fake money and own a few Theta tokens as well as BAT, FARM and AMPL tokens but I'm a die-hard silver bug and will continue to support my favorite precious metal until the day I finally get reckoning and see it break its 1980 high as it continues to soar to the moon and beyond. 2022 could be the year as all the right fundamentals are in place, like fuel in a rocket to light up and propel silver to new breath taking highs.
Alisdair McLeod was interviewed on Friday by Eric King of King World News in which he states that rising interest rates beginning in 2022 will rock global markets and also states this will be good for precious metals, especially silver and gold. Click here to listen to the interview.
(2019 data) The average solar panel utilizes about 20 grams or 0.643 troy ounces of silver.
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