If you are an investor in precious metals, mainly silver and gold, Wednesday was a monumental day that almost acted like a crystal ball allowing market participants a glance into the future.  The reason for this was attributed to the Federal Reserve’s decision to not only hold interest rates where they are in the face of rising inflation, but also because Jerome Powell, Federal Reserve Chair, announced that the Federal Reserve is planning on cutting rates three times this year which would ease downward pressure on inflation.

Right as the clock struck 2:00pm EST and the announcement to hold interest rates at 5.50% was officially announced, silver shot up from $24.87 USD/oz to $25.70 USD/oz within an hour – a massive 3.34% jump.  Similarly, gold made an immediate move of its own at 2:00pm EST jumping from $2155.80 USD/oz up to $2203.96 USD/oz, a 2.23% spike within the hour; crossing $2200 USD/oz for the first time in history.

Both metals consolidated and saw sideways price action through the day in anticipation of the interest rate announcement – right up until the Federal Reserve let everyone know they are continuing to ease their fight against inflation.  Take a look below at how sharp these moves were:

The reason many are speculating this was a look into the future is because inflation in 2024 has not continued to drop as it had in 2023.  For context, in December of 2022, inflation sat at 6.5%, and by December of 2023 inflation was brought down to 3.4%.  This rate continued to drop into 2024 as inflation was clocked in at 3.1% in January signalling the Federal Reserve was still on the right path.  However, in February of 2024, inflation ticked back up to 3.2%, a sign that inflation was beginning the second wave many, including us, have been warning about.  Knowing that, there was no expectations that interest rates would be moved higher, but many market experts believed that the Federal Reserve would at least appear more hawkish in their outlook rather than telling everyone interest rates would still be cut this year.  The fact they signalled to future rate cuts in the face of rising inflation still well above their 2% goal, told everyone the system could not handle more interest rate hikes or banks would continue to collapse and consumers would continue to be squeezed, which even with rates unchanged is not out of the question.

Looking around the globe, you can see the same financial developments happening as gold soared to all-time highs in all major currencies proving that as currencies weaken, gold will be there to soak up the loss in purchasing power.  In Euros, gold surged 1.3% to an all-time high of €2033.  In the UK, gold also rose 1.7% above the previous all-time high in pounds to £1737.  In Switzerland, gold also found a new all-time high at 1976 CHF (Swiss Francs) per ounce.  Here in Canada, gold again made a fresh all-time high Wednesday reaching $2969.59 CAD.  The same can also be said for currencies that are used far less frequently on the world stage as they continue to weaken against the United States Dollar while the United States Dollar continues to weaken against gold which seemingly is making a new all-time high each week.

The question that is now on many precious metal investors mind is, “where does that leave silver?”.  Well, as we have covered in the past, during precious metal bull markets, it is often gold that makes the first strong move to kick the door down, while silver in turn picks up rapid speed to outpace the gains made by gold.  If we look at the historic gold/silver ratio, which is still signalling that silver is far undervalued sitting just under 88/1, we can see that the room for price gains in silver is massive.  The reason for this conclusion is because looking at the 100-year range of this ratio silver and gold got as low as 15/1 when silver was considered fair value, and as high as 113/1 when silver was considered its most undervalued.  At 88/1 we are far closer to the high.  Say we returned to the median of 64/1 and we assume the gold price does not move – this puts silver at around $32 USD/oz, a 29.29% increase from current prices of $24.75 USD/oz as of writing.  If the ratio were to drop even further to the 20^th century average of 47/1, again assuming gold does not move higher, silver would rise to $43 USD/oz nearing all-time highs; a 73.74% increase in price.  Of course, this is purely fantasy because in this scenario gold would continue to push higher, increasing the price of silver even further if it were to reach these historic ratios.  The fact these ratios have been seen many times in history points to the fact that they are more than achievable again in an era where silver has never been more in demand from an industrial and monetary perspective.

If we turn our attention to China, we see even further pressure being put on silver and gold to the upside.  In our previous newsletters we have been pounding the table about the price arbitrage seen between the price of silver and gold in China, and the prices of both in the United States, which we believe will ultimately pull Western prices higher (USD/CAD).  However, there is some in financial spaces who are not convinced the Chinese price could impact Western prices to any significance, and we have solid evidence that is not true.  Yesterday, March 21^st, 2024, the Shanghai Gold Exchange had silver priced at $28.08 USD/oz, and gold priced at $2227.78 USD/oz.  Wednesday evening, gold continued its after-hours rally and reached a fresh all-time high in USD in the United States hitting $2222.22 USD/oz – around $5 shy of the Shanghai Gold Exchange price that has been leading the market.

It is becoming ever clearer that even at the heightened USD prices in Shanghai, demand for both silver and gold are still incredibly strong as the Chinese government along with retail buyers in the public continue to lead the world in gold and silver purchases.  As this continues, due to the price arbitrage we previously explained, the West is being drained of physical inventory that is being shipped overseas to satisfy the ever-growing demand for sound money alternatives that don’t leak value due to inflation theft.  If you too want to get ahead of any massive price movements, here at Au Bullion, we have you taken care of.  Below you will find incredible deals on both gold and silver to allow for maximized wealth protection.

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