Currency Debasement for Dummies
The Silver Trade. Don't be so linear.
“Don’t be so linear.” —Philo
Let’s focus on Silver.
Since the breakout of the key $35 level the precious metal is up almost 150%, hitting $84 just a few days ago.
Besides being an industrial metal with increasing importance as a component for tech-related assembly — it is also an inflation trade.
That means people buy Silver to protect their wealth from currency debasement, and traders try to ride that move to make money.
The problem with the precious metals trade is that it’s not linear: That means Gold and Silver don’t increase in value according to stated or actual inflation.
In fact, they fluctuate violently — with long drawdowns and long periods of going sideways.
That makes the Precious Metals trade even more complicated.
So, you like the Silver trade and sentiment is very bullish — but what does history have to say?
First, sentiment is very bullish on Silver in a typical narrative follows price dynamic.
This FT reader seems to be citing the following fundamentals as reason for Silver to continue moving up.
I think he is just reflecting what the market is pricing in — but what he is saying has no predictive power as to where the price of silver is headed.
In revision, this is how he views the fundamentals for Silver 👇
The margin requirement change shakes out small investors — and so the price dip is only transitory
China export restrictions are going to cause prices to rocket, starting January
Physical supply is gone
Sovereigns securing supply and buying directly from mines
Big companies doing the same
Silver is an EV play
Silver is an Alternative Energy play
It’s an AI play also!
etc.
Now let’s see what history teaches and look into how “fundamentals” actually connect with market realities.
CAVEAT EMPTOR: Global Macro trading is not economics.
Do you remember this book?
If you don’t recall — Jim Rogers was a commodities perma-bull almost 30 years ago. How did he do since then?
Anyway… Let’s start by analysing the two previous historical cycles on Silver before getting to the current one.