Hard to say where Ag will end up.
Of course, everyone knows that silver tends to float with the gold price's direction. My perspective is that gold is elevated due to negative real interest rates. Depending on your view of CPI, whether you roll with the current government number or still calculate it as we did in the 70s and 80s, real interest rates are either slightly negative or VERY negative.
If you stick with the negative real interest rate perspective, the question is, "When will real interest rates move into positive territory?" From what I gather, Japan chose the route of low interest rates to combat their economic issues in the late 80s and early 90s, and interest rates there have remained low for over 20 years. Perhaps, we are following in their footsteps. If so, we could see low interest rates and consequently negative real interest rates for decades.
I look at it slightly differently. It seems much more realistic to just consider what would happen if interest rates rose here in the U.S. Perhaps, our economy would buckle. The government would have to pay higher interest to fund its activities, and they would either have to cut spending in certain areas (I doubt they go this route) or create money out of thin air to pay the bills. Both of those scenarios are counterproductive to GDP. If spending is cut, this will shrink the economy, and if the USD is debased to pay for an ever-growing and out of control interest expense, that seems like the end-game. Therefore, the point is, I highly doubt we see much higher interest rates any time soon. However, if we do, silver and gold would skyrocket if the economy comes under extreme pressure.
On the other hand, if the government can find some way to increase interest rates to the point that holding gold or real assets is no longer worthwhile, the gold/silver market would collapse. I just do not see this as very likely. I need to better understand what Volcker did in the 70s/80s.
The curious thought that comes to mind is what were gold/silver prices in the JPY during the last 20 years. Oddly enough, real interest rates did not seem to cause gold to obscenely skyrocket there. This appears to have been a development over the last 10-12 years. This is food for thought, certainly... perhaps the only reason people are buying gold and silver is fear. However, another possibility is that the Japanese merely bought more U.S. dollars rather than gold, because it was available and certainly more liquid than gold or silver. I will side with this theory.
My guess? Inflation is working its way into energy and stocks right now. Everyone seems to think that bonds are on the verge of a major trend change. If everyone begins to see $$$ in stocks, perhaps they will kick their bonds to the curb, and if that happens, does that mean higher interest rates? I cannot answer this. I need to study more history surrounding government bond collapses. It seems to me the government has a resilient ability to buy its own bonds and keep rates low. I do not see the final red line to be crossed.
I would guess inflation will jack up stocks and energy, and we will get back into a stagflation state where energy costs are counterproductive to growth. We will probably hover at the breaking point for a while, and then government policies will probably mess everything up and send the markets into a sharp retracement.
The fear factor will wane, initially, while everything seems to be peachy (i.e. before exhaustive energy costs). Therefore, gold and silver may not do well initially, but eventually, when everyone is exasperated with high energy costs (etc.), the economy will reverse, and fear will reenter in prevalence. This will likely cause gold and silver to jump much higher, in the end.
It is really hard to say, but I welcome any thoughts or feedback on the above. The primary reason I am here is because I enjoy thinking about these kinds of things, and they directly effect EXK, which I now own as of last Friday. It was either this or FSM, and I liked the growth prospects of EXK more. I own FSM too (and have for years), but a recent write-up on EXK in Morgan Report sold me. It took some time to set in (fairly certain that write-up was from Q3 of last year). The prices right now are very hard to pass up.
