Global Nuggets by Chris Howard

When Is a Recession a Recession? It’s a Perfect Time To Buy Silver

Global Nuggets

By Chris Howard

03/08/2022


If you Google the word, the technical description of a recession is 2 successive quarters of falling GDP.

This is what has just happened in the US this week.

But President Biden and the White House seem to think otherwise and say the US is not in recession. We live in times where politicians make news up as they go along.

For now, we’ll say the US is officially in recession.

Is this the ‘canary in the coalmine’ for other economies? Probably.

Why Is It Important for Silver?

The last time the US was in recession was in 1990, lasting 8 months.

March 1991 marked the last peak of the gold/silver ratio, which is back up at the same levels (if you remove the Covid spike). This means that silver is the ‘cheapest’ relative to gold since February 1991. And as Tyler Durden at Zero Hedge comments, silver is extremely underpriced compared to gold, and that gap will close at some point in the future.

What Is the Gold/Silver Ratio?

Since ancient times there has been a correlation between gold and silver. The Romans set it at 12:1, meaning that one ounce (or equivalent) of gold could buy 12 ounces of silver.

It remained in roughly the same band for centuries, with the US government fixing the ratio at 15:1 in 1792. By 1932 President Roosevelt fixed the price of gold at $35 an ounce, with the ratio shooting up to 98:1 by 1939.

After a lull post WW2 and the end of the Gold Standard, the ratio peaked again at 97.5:1 in 1991. Until this week (as mentioned above, there was a Covid spike in the ratio in March 2020, but this can be discounted for now).

So, What’s the Case for Buying Silver Now?

As recently as 2020, the ratio set new highs of 123:1 as the pandemic saw investors rush for gold, with the ratio then tumbling to 65:1. In early 2021, the focus was again on gold, with the price rising fast relative to silver.

In recent months the Fed and other government treasuries have tightened monetary policy, resulting in selling pressure on both gold and silver.

The big question is how long will the Fed take to reverse the brakes once being in recession becomes reality? There is a strong likelihood that governments will need to kick start economies with QE and rate cuts once the recession starts hurting.

These facts, plus limited supplies of silver at mints and emerging industrial demand from the green energy sector, mean it may be the perfect time to take advantage of silver being ‘on sale’.

Interesting times!

This Week’s News

Here are a few news nuggets from the world of precious metals this week.

Gold/Silver Ratio

Gold/Silver Ratio Highest Since 1990s Recession

https://www.zerohedge.com/commodities/goldsilver-ratio-highest-1990s-recession

Charting the Gold-to-Silver Ratio Over 200 Years

https://elements.visualcapitalist.com/charting-the-gold-to-silver-ratio-over-200-years/

US Recession and Interest Rate Hike

U.S. Economy Just Had a 2nd Quarter of Negative Growth. Is It in a Recession?

https://www.npr.org/2022/07/28/1113649843/gdp-2q-economy-2022-recession-two-quarters

Fed Hikes Interest Rates by 0.75 Percentage Point for Second Consecutive Time To Fight Inflation

https://www.cnbc.com/2022/07/27/fed-decision-july-2022-.html

Fed Rate Hikes Are Starting To Bite, and That Is Good for Gold

https://www.kitco.com/news/2022-07-29/Fed-Rate-hikes-are-starting-to-bite-and-that-is-good-for-gold.html