Financial Strain on Consumers: Inflation and Elevated Interest Rates Pose Substantial Challenges

A cursory look at some of the nation’s key economic indicators might lead one to believe that the average American consumer is content. The headline unemployment rate, standing at 3.9%, not only signifies full employment but is also close to the lowest rate in the past five decades. Additionally, GDP growth, which was a modest 2.1% in the second quarter, surged at more than double that pace in the third quarter, according to the Commerce Department’s recent advance estimate.

Consumer spending, constituting 70% of GDP, saw a 4% increase in the third quarter and played a significant role in the 4.9% overall GDP growth. On the surface, these appear to be robust figures reflecting the breadth and width of economic activity, suggesting an optimistic outlook among American consumers.

However, this is not the case.

The Consumer Confidence Index from the Conference Board dropped for the third consecutive month in October, following a sharp decline in the University of Michigan’s Surveys of Consumers, which has also slid for three consecutive months. Despite low unemployment, improving GDP growth, and continued group spending, consumers seem unaffected by positive economic signals. The communication of this message appears hindered by persistent inflation and higher interest rates.

The consequence is an American consumer base increasingly characterized by challenging economic realities, such as living paycheck-to-paycheck and experiencing a phenomenon known as the credit-card “doom loop.”

This week, we delve into the frontline of the economic challenges faced by consumers, aiming to understand better why seemingly positive metrics like low unemployment and robust GDP growth do not translate into improved quality of life for many.

SURVEY: Elevated Interest Rates Pose Challenges for Middle-Class Americans

As per a Harris poll commissioned by Bloomberg News, a significant portion of middle-class Americans is expressing concerns about the state of the economy. Interestingly, this worry has intensified over the past year, despite a notable and consistent decline in inflation.

The survey reveals that a substantial 44% of middle-class individuals are feeling “stressed” about the economy, marking an increase from the 40% recorded a year ago. The primary culprit behind this anxiety is identified as the higher interest rates implemented by the Federal Reserve in its efforts to curb inflation, with 57% of respondents indicating that these elevated rates are adversely affecting their household finances.

For instance, paralegal Rebecca Acuna, in need of a new car, has opted to delay the purchase due to what she considers prohibitive interest rates. According to her, financing a car under the current interest rate conditions is inconceivable, leading her to continue driving her current vehicle until it becomes unviable.

The survey also highlights that 61% of middle-class Americans believe their financial situations have either worsened or remained unchanged compared to the previous year. This sentiment indicates a prevailing frustration, if not bitterness, among Americans regarding how politicians and economists perceive their financial challenges.

Tiffany Bond, an attorney in Maine, expressed skepticism about the understanding of the current budgetary stress by elected officials. John Gerzema, CEO of the Harris Poll, echoes this sentiment, emphasizing the disconnect between economists and the everyday financial struggles of the middle class.

Real personal income is witnessing a decline, with the Commerce Department reporting a consecutive three-month drop in September when factoring in inflation and taxes. The prevailing emotion among respondents when contemplating the economy is stress.

One notable area where the impact of higher interest rates is particularly challenging is for individuals using credit cards and carrying balances—an increasingly common scenario.

Next, we’ll explore the specific challenges posed by higher interest rates for those managing credit card balances.

INCREASING NUMBER OF AMERICANS ENSNARED IN THE CREDIT-CARD “DOOM LOOP”

Earlier this year, reports emerged that credit card debt in the United States had surpassed the historic $1 trillion mark. Some analysts downplayed the significance, citing the concurrent rise in household asset values as a balancing factor for the increased debt load.

However, recent data released by the Consumer Financial Protection Bureau (CFPB) suggests that an escalating number of Americans are becoming ensnared in the financially detrimental phenomenon known as the credit card “doom loop.”

This “doom loop,” clinically termed “persistent debt,” is characterized by borrowers facing higher charges in interest and fees than they can offset through principal payments—a situation notoriously challenging to escape. A CFPB representative stated, “People get into this situation they can’t get out of. The fees and interest keep people trapped there.”

According to the CFPB, approximately 10% of credit card accountholders found themselves trapped in this doom loop in the previous year, marking an increase from the 8.4% recorded in 2021. The CFPB attributes this rise to a combination of declining real earnings and elevated interest rates.

In the preceding year, Americans were burdened with a staggering $105 billion in credit card interest, including a noteworthy $30.5 billion in the fourth quarter—a fourth-quarter total not witnessed since at least 2015, according to the CFPB. Much of this surge is attributed to the escalation in credit card interest rates, a direct result of the Federal Reserve’s efforts to combat inflation.

The CFPB highlights that the average Annual Percentage Rate (APR) on private label cards reached a striking 27.7% by the end of the last year. Concurrently, the average rate on general-purpose cards increased from 18.8% in mid-2020 to 22.7% by the close of 2022.

Anticipating a further increase in the number of Americans caught in the credit card doom loop this year, the CFPB emphasizes the industry’s use of rewards to lure consumers in. However, unforeseen circumstances can disrupt plans, leading to the hefty price of carrying a balance.

Disturbingly, the CFPB notes that a significant percentage of accounts made only the minimum payment each month in the previous year—13% of general-purpose credit card accounts and 17% of private-label accounts.

As ongoing inflation, rising interest rates, and the expense of using credit cards contribute to financial strain, a concerning proportion of Americans are now finding themselves living paycheck to paycheck. One consumer advocacy group even identifies this as “the main financial lifestyle among U.S. consumers.”

The next segment will delve deeper into the challenges faced by Americans grappling with the repercussions of inflation, interest rates, and the use of credit cards to navigate their financial circumstances.

“Living from Paycheck to Paycheck” Emerges as the Dominant Financial Lifestyle in the United States

Undoubtedly, Americans find themselves caught in the crossfire of both inflation and elevated interest rates, prompting a necessary adjustment to what consumer-finance researchers LendingClub characterize as a new financial reality—a prevailing “financial lifestyle.”

Living paycheck to paycheck has become the norm for a significant portion of the population. As of September, 62% of American adults reported adopting this financial approach, a percentage unchanged from the previous year. In the face of these economic challenges, the report somberly underscores that “living paycheck to paycheck remains the main financial lifestyle among U.S. consumers.”

This situation isn’t entirely unexpected, considering the current economic landscape represents the most formidable period of inflation since the era aptly labeled the “Great Inflation” four decades ago. To counter soaring prices, the Federal Reserve has implemented the most rapid interest rate hikes in approximately 40 years.

The complexity deepens when considering the burden of debt shouldered by Americans. Total household debt surpassed the historic $17 trillion mark this year, a milestone contributing to heightened financial strain. Notably, over $1 trillion of this debt is attributed to costly credit card balances.

High prices, elevated interest rates, and record debt levels create a perfect storm, leaving the majority of the nation perilously close to financial trouble with just one missed paycheck. Columbia Business School economics professor Brett House observes that many households are grappling with stretched finances, forced to make difficult choices like deferring discretionary spending to meet loan obligations and cover essential costs. The resumption of student loan payments adds an additional layer of stress to the situation.

The ongoing confluence of persistently high inflation and interest rates has led to significant economic challenges for many Americans. Consequently, consumer confidence continues to decline, and the optimistic prospect of a smoothly navigated conclusion to the current cycle of high inflation and interest rates remains uncertain.

 In these circumstances, the hoped-for soft landing may prove elusive once again, underscoring the enduring hardships faced by individuals navigating this challenging economic terrain.

In the midst of these economic challenges, the financial landscape is witnessing a notable surge in interest in precious metals investing. The bid that ignites the gold sector has garnered attention from investors seeking stability amid market uncertainties. As individuals navigate the complexities of inflation, higher interest rates, and the credit-card “doom loop,” there is a growing recognition of the role that precious metal investments can play in diversifying portfolios and hedging against economic volatility. Silver investment plans, often overlooked, are gaining traction as savvy investors explore opportunities beyond traditional asset classes. For more information visit goldinvestors.us

Title: Economic Strain: Inflation, Rates, Credit Woes

Description: Facing economic strains with inflation, rising interest rates, and credit card challenges, Americans turn to precious metal investments for stability.

Uncertainty Surrounding Recession: A Lack of Agreement on the Probability of an Economic Decline.

Officially, there is now a consensus on the uncertainty surrounding the possibility of a recession in the U.S. economy, a stark contrast to the more definitive predictions earlier this year.

In March 2022, the Federal Reserve raised interest rates for the first time in the current tightening cycle, and at that time, economists surveyed by Reuters estimated a 25% chance of a recession in the next 12 months, with a 40% likelihood within two years.

However, by October 2022, the outlook had become increasingly pessimistic, with economists indicating a 65% chance of a recession within a year. A subsequent Reuters poll in March of the following year revealed a consistent 65% probability of a recession within two years.

Yet, a noteworthy shift occurred as a number of influential voices, who had previously predicted a looming recession, changed their tune. Among them was Michael Gapen, the chief U.S. economist at Bank of America. In July 2022, Gapen was forecasting an impending recession, but by August of the current year, his stance had evolved.

Gapen explained his revised outlook, stating, “Incoming data has made us reassess our prior view. We revise our outlook in favor of a ‘soft landing,’ where growth falls below trend in 2024 but remains positive throughout”.

Despite this shift, not all economists have adjusted their views accordingly. Many analysts still maintain that a recession remains a distinct possibility in the near future.

This lack of consensus creates a challenging environment for consumers and retirement savers. Navigating the economic landscape is complex when there is a consensus on its trajectory, but it becomes even more daunting when such agreement is lacking.

In the upcoming week, we will explore the perspectives of those who anticipate an impending recession and those who believe it will pass. Moreover, we will address how consumers and savers can approach the situation when even the experts on the economy do not concur on its future course.

But before delving into those matters, let’s first consider the current outlook of economists.

Bloomberg Economics: While a Soft Landing Remains a Possibility, It’s Not the Most Probable Scenario.

Bloomberg Economics maintains that a recession continues to be its central economic scenario. This viewpoint is grounded in several key factors, one of which is the delayed impact of the Federal Reserve’s rigorous rate-hike policy.

Bloomberg argues that it typically takes 18 to 24 months for rate increases to substantially affect variables such as the unemployment rate. Thus, the full implications of the cumulative 525-basis-point rate hike (up to this point) may not manifest until the end of the current year, at the earliest.

Moreover, the prospect of further rate hikes by the Federal Reserve is not to be dismissed. According to the most recent Fed projections, central bankers are intending to implement one more rate increase before concluding their hiking cycle this year.

Bloomberg Economics underscores that the concerns about inflation persist for various reasons, regardless of the ongoing rate-hike impact delay. This includes the emergence of new economic threats, such as the potential for an extended autoworkers strike, the resumption of student-loan payments, a surge in oil prices, and the real possibility of a contentious government shutdown.

Global economic slowdowns, already underway in critical regions, are another significant contributor to Bloomberg’s recession projection. They cite the real estate crisis in China and a drop in lending within the Eurozone as factors that will affect the U.S. economy. Notably, the decline in lending in the Eurozone is occurring at a swifter rate than during the sovereign debt crisis from 2009 to the late 2010s.

Another less-discussed aspect contributing to Bloomberg’s recession outlook is the findings from the Federal Reserve’s Senior Loan Officer Opinion Survey (SLOOS). The survey indicates that approximately half of the country’s large and mid-sized banks are tightening access to commercial and industrial loans. Bloomberg Economics anticipates this will have an impact during the fourth quarter, marking the most significant restriction since the financial crisis (excluding the pandemic).

Summing up, while a soft landing is a conceivable outcome, Bloomberg Economics deems it less probable. With the confluence of Federal Reserve rate hikes, potential auto strikes, student loan repayments, rising oil prices, and a global economic deceleration, a recession appears more likely in their assessment.

Others sharing the view of an impending recession include The Conference Board, whose principal economist, Erik Lundh, envisions an economic downturn in early 2024. Lundh attributes this forecast to a multitude of factors, including elevated inflation, high interest rates, diminishing pandemic savings, increasing consumer debt, reduced government spending, and the resumption of mandatory student loan repayments.

Regarding the rosy outlook for consumer spending as an indicator of economic health, Lundh expresses skepticism, noting that “this trend cannot hold.” He points out that compensation growth is slowing, pandemic savings are depleting, and household debt is on the rise. Additionally, the impact of new student loan repayment obligations will begin affecting many consumers starting in October.

The Conference Board’s projection for real GDP growth in 2024 stands at a modest 0.8%.

The perspective of those who argue against the likelihood of a recession occurring is worth exploring.

Federal Reserve President Bostic: Recession Is Not in Sight, and Current Rates Are Adequately Restrictive.

Notably, the analysts at Goldman Sachs are among the prominent advocates of the “no-recession” perspective.

In a recent research report, Goldman analysts asserted that the likelihood of the United States encountering a recession within the coming year stands at just 15%. Importantly, this figure aligns with the historical average chances of a recession materializing in any given year.

The report challenges the notion that the economy is destined for an unfavorable outcome due to the eventual repercussions of elevated interest rates. The analysts emphatically disagree with the idea that the “long and variable lags” associated with monetary policy will steer the economy towards a recession. Instead, they believe that the influence of monetary policy tightening will steadily diminish, ultimately vanishing entirely by early 2024.

Jan Hatzius, Chief U.S. Economist at Goldman Sachs, is of the opinion that the Federal Reserve has concluded its interest rate hikes.

Even the recent upswing in Treasury yields, according to Goldman analysts, is unlikely to trigger a recession. In a recent note, they stated that the primary consequence of the tightening financial conditions brought about by rising rates is an extended drag on GDP growth. They anticipate a potential half-percentage point decline in U.S. GDP growth over the next year. While they acknowledge this decline as “meaningful,” Goldman economists maintain that it is “too small to threaten a recession”.

Atlanta Federal Reserve Bank President Raphael Bostic expressed a similar viewpoint when addressing the American Bankers Association. He indicated that he foresees no need for further interest rate increases and does not anticipate a recession on the economic horizon. Bostic emphasized that additional rate hikes are unnecessary for the central bank to achieve its 2% inflation target. He believes that current rates are sufficiently restrictive. Bostic also concurs with Bloomberg Economics regarding the delayed impact of rate hikes, but he is confident in the economy’s strength to absorb that impact without succumbing to a recession.

Furthermore, in its latest quarterly economic forecast released the previous week, the highly regarded UCLA Anderson Forecast acknowledged weaknesses in the 2024 economy but did not anticipate a recession.

UCLA Anderson Forecast: Worries Over Recent Risk Events May Be Overstated.

To begin, UCLA Anderson Forecast perceives the potential consequences of recent risk factors, such as the autoworkers’ strike and the potential government shutdown, as relatively limited. In contrast to those who anticipate a cumulative impact from these events, UCLA Anderson economists treat them as discrete occurrences and assess their potential effects accordingly.

Drawing from historical precedents of such events, they have made only minor adjustments, trimming a few tenths of a percentage point from the GDP growth forecast.

Similar to the perspectives of Goldman Sachs and Raphael Bostic, UCLA Anderson believes that the current mix of economic output, declining inflation, and monetary policy is well-balanced, reducing the likelihood of a recession. They do anticipate the Federal Reserve implementing the widely expected 25-basis-point rate hike later this year but do not foresee further tightening.

While acknowledging that “the impact of higher interest rates will constrain growth in 2024,” they anticipate that as the Federal Reserve shifts its focus away from aggressive interest rate increases and inflation gradually returns to an annual rate of under 3%, the forecast suggests a neutral stance from the Fed and a return to trend-rate economic growth.

Thus, these are the two sides of the “recession argument,” both presented by highly reputable sources.

It’s worth noting that seldom have well-qualified economists and analysts been so sharply divided on the short-term economic outlook. As we near the conclusion of this year, it’s apparent that uncertainty has been the dominant theme, as suggested by Augusta Precious Metals’ director of education at the beginning of 2023. This year’s events have indeed underscored the aptness of the term “uncertainty.”

Regarding how retirement savers can navigate this climate of uncertainty, let’s briefly discuss that as we conclude.

The high level of uncertainty may necessitate a reevaluation of investment strategies.

For consumers and those planning for retirement, the prevailing uncertainty carries more weight than just a mere talking point. It presents a substantial obstacle to the stability of their personal finances, making it a matter worth addressing.

Uncertainty inherently signifies a departure from the usual confidence about the future. In such circumstances, the avenues available to mitigate the potential impact of this uncertainty on financial well-being may appear more restricted. When you lack a clear vision of what lies ahead, how do you proceed with prudence?

However, this challenge does not imply that individuals have no means to proactively protect their financial interests. Some people opt to include in their portfolios assets that have historically shown resilience during periods of economic ambiguity and volatility.

One such asset class is precious metals, with gold being a notable example. Over the past 15 years, a period marked by a consistent rise in global economic uncertainty, gold has proven to be a fundamentally uncorrelated asset. Since the turn of the millennium, the price of gold has appreciated by nearly 600%.

It’s important to acknowledge that gold and silver may not suit everyone as asset choices. Nevertheless, the reality of uncertainty characterizes the current economic landscape, and for some individuals, this might be an opportune moment to explore ways to mitigate potential repercussions, rather than letting the effects of uncertainty go unchallenged.

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As we explore the ongoing discussions on the possibility of a recession and the diverse viewpoints presented by renowned experts, it’s essential to consider the role of gold trade investment and the gold trading platform, as well as the top trends in gold stock investors. Silver investment is also a significant factor to weigh, including insights into the best silver investment companies. These elements play a crucial part in shaping investment strategies and responding to the uncertain economic landscape. For more details visit goldinvestors.us

Title:  Economic Uncertainty: Recession Views & Investments

Description:  Experts’ divided opinions on a U.S. recession create uncertainty. Explore economic outlooks and strategies for navigating this landscape

The most recent alerts regarding the fiscal outlook emphasize a potentially unsustainable path

The fiscal year of the federal government concluded on September 30, with the final 2023 deficit figure still pending, but expected to be exceptionally high. Despite a year without any pandemic relief or national crises and with low unemployment and apparent economic growth, the Congressional Budget Office anticipates a $1.7 trillion deficit, ranking as the third-highest in U.S. history, with no apparent justification for this level of spending.

This concerning 2023 budget deficit reflects a disturbing trend of fiscal imprudence in the United States, even though the year has been marred by fiscal missteps. A protracted debt-ceiling standoff was resolved in June, suspending the ceiling for a year and a half in exchange for modest spending cuts that failed to address the nation’s fundamental fiscal issues. In response to this debacle, Fitch Ratings downgraded the nation’s credit rating from AAA to AA+, citing a continuous decline in governance standards and confidence in fiscal management.

Furthermore, Congress had to hastily assemble stopgap legislation on the last day of the fiscal year to avert a government shutdown until November 17, caused by deep divisions between Republicans and Democrats on funding priorities for 2024, leading to the removal of Kevin McCarthy as House speaker, with no resolution in sight.

The looming threat of a prolonged government shutdown persists, with analysts suggesting it could extend well beyond a few days. In addition to these challenges, two prominent figures at the International Monetary Fund publicly criticized the uncertain U.S. fiscal outlook. Simultaneously, the Penn Wharton Budget Model projected that if current fiscal policies continue, the government could default on its debt within two decades, which adds a layer of complexity to the trends gold stock investors should consider.

These condemnations from IMF officials and the unsettling projections from Penn Wharton underscore the precarious state of the nation’s fiscal future. They serve as the latest reminders that, unless substantial changes are made to U.S. fiscal policy, economic uncertainty and the accompanying volatility will remain significant features of the landscape, impacting the best gold investment companies and the gold investment stock market.

The IMF has expressed a highly unfavorable view of the debt dynamics in the United States

 which should also be of concern to those in the gold market investment. Even with the multitude of fiscal missteps throughout 2023, Vitor Gaspar, Director of the International Monetary Fund’s Fiscal Affairs Department, has a straightforward message for the United States:

“US deficits are high and are expected to persist. If policies remain unchanged, the United States faces highly unfavorable debt dynamics,” and this can influence gold investment for beginners.

Gaspar’s message essentially echoes what others have already warned: the country may not be on the brink of fiscal disaster at this moment, but if the widely cited “fiscal trajectory” isn’t altered promptly, the consequences could be severe for gold investment stock and the broader gold investment market.

In other words, fiscal irresponsibility and the potential for fiscal calamity are closely intertwined. This should come as no surprise, but it seems like one given the reluctance of many in Washington to change course.

It’s worth noting that Treasury yields – the interest the government pays to investors for U.S. debt – have been on the rise lately. This increase in yields is believed to be linked to the growing awareness among investors, including many foreign nations, of the potential repercussions of unsustainable national debt, which can have implications for the gold market investment. As the U.S. concluded 2023 with the projected $1.7 trillion deficit, foreign investors have been reducing their purchases of U.S. Treasurys. The combination of waning investor interest and the government’s need to issue more debt to cover the surging deficit is driving up interest rates to attract buyers, which can affect gold market investment trends.

The situation is further complicated by the fact that this substantial deficit in 2023 is just the beginning of a series of projected large deficits, even though prevailing economic conditions don’t seem to warrant such excessive spending.

Pierre-Olivier Gourinchas, IMF Research Director, addressed the perplexing scenario of mounting deficits during a period of apparent economic health, implying that U.S. fiscal policy is irresponsible:

“What’s most concerning is the case of the United States, where fiscal deficits deteriorated significantly in 2023. Fiscal policy in the U.S. should not be pro-cyclical, especially at this point in the inflation cycle.” This sentiment has implications for the gold investment market and gold investment stock.

Pro-cyclical fiscal policy refers to increasing government spending during a period of economic prosperity when there’s ostensibly less need for such spending, and this can have an impact on gold investment trends.

However, spending persists. It was evident in the fiscal year 2023, and the Congressional Budget Office foresees it continuing at an astonishing average rate of around $2 trillion per year over the next decade. It’s plausible that discussions about the nation’s “unsustainable” fiscal outlook will become more pronounced, especially if forecasts like the recent one from the Penn Wharton Budget Model gain traction. Penn Wharton analysts have shed light on the potentially dire long-term fiscal outlook by openly addressing the consequences that could follow if this unsustainability is not promptly addressed, affecting gold investment stock and gold market investment trends.

According to the Penn Wharton Budget Model, the United States faces the possibility of defaulting on its debt within as little as two decades, adding a layer of complexity to the gold investment market and trends gold stock investors should consider.

Penn Wharton analysts suggest that a public-debt-to-GDP ratio of 175% could potentially serve as a trigger for default

which can be of concern to gold market investment and those looking for the best gold investment companies.

The 200 percent threshold is calculated as an outer limit, factoring in certain optimistic assumptions. A more realistic threshold, according to Penn Wharton researchers, is closer to 175 percent, and even then, it assumes that financial markets believe the government will eventually adopt an effective resolution strategy. They emphasize that once financial markets lose confidence in this belief, the unraveling of financial stability can occur at lower debt-to-GDP ratios, which is crucial to consider for gold investment for beginners.

Notably, Penn Wharton clarifies that the potential outcome they describe is not a mere technical default with delayed payments. Instead, it could be a much larger default with significant repercussions for both the U.S. and global economies, impacting the gold investment stock and the broader gold investment market.

While some of the debt increase can be attributed to well-understood factors like recovery efforts following major economic events such as the financial crisis and the recent global health crisis, Penn Wharton underscores that the trajectory of U.S. debt is unmistakably upward. Past projections have consistently underestimated this growth, regardless of the reasons behind it, which is relevant to gold market investment.

In the past, U.S. leaders might have taken offense at the strong criticisms from IMF officials regarding the government’s fiscal management, affecting the gold investment market. However, to warrant such a reaction, there would need to be a defensible fiscal position to defend, and currently, that position appears to be lacking. This year has witnessed a series of fiscal missteps and warnings, including Penn Wharton’s dire projection of a potentially significant default if Washington does not take decisive action to avert it, which should be a concern for gold investment stock and gold market investment trends.

While it is hoped that the necessary actions will be taken in due course, the fact that they have not been implemented thus far implies that it cannot be taken for granted. This underscores the importance of individuals considering steps to mitigate the potential consequences of increasing fiscal uncertainty in case it does materialize, including those looking for the best gold investment companies and gold investment for beginners.For more visit goldinvestors.us

Title  Fiscal Outlook: Concerns for Gold Investor

Description : US fiscal outlook raises concerns: Rising deficits, potential default, and their impact on the gold market.

Impact on the American Economy and Investment Strategies

Uncover stagflation’s impact on the US economy, a blend of inflation and reduced output. Experts’ warnings, gold as a hedge, and implications for savings and investments

The looming specter of stagflation has cast a shadow over the American economy for some time now. This might appear counterintuitive, given the consistently robust data typically associated with a thriving economy.

To delve into the matter, stagflation is a relatively infrequent occurrence in the economic cycle, characterized by the simultaneous presence of inflation and reduced economic output. So far, we’ve witnessed the inflationary side of this equation, but some analysts remain concerned that the “downturn” phase may be lurking just around the corner.

Since March 2022, the Federal Reserve has executed a remarkable 11 interest rate hikes, marking the fastest pace of increases in the past four decades. Despite these developments, the headline indicators reflecting the economy’s health continue to suggest it’s in excellent condition.

For instance, despite the series of rate hikes, the unemployment rate remains at its lowest point in nearly half a century. Consumer spending has also remained strong throughout 2023. Furthermore, the most recent data reveals that the third and final estimate for annualized GDP growth in the second quarter stood at a solid 2.1%.

This doesn’t paint the picture of a recession. Nevertheless, the current reality may be concealing what lies ahead on the economic horizon.

This is because, according to analysts and economists, the effects of the Federal Reserve’s interest rate hikes are still percolating through the nation’s economic framework. They anticipate that signs of an impending recession will become increasingly evident.

Economist David Rosenberg is among those who believe that the economy may not have completely averted the threat of a recession. He points out a crucial factor that is presently underappreciated – the likelihood that the rapid rate hikes by the Fed have yet to fully manifest their impact.

Rosenberg recently explained, “Normally, it takes two years after the first rate hike by the Fed for a recession to take hold. We’re not going to avoid a recession.”

“The recession has been postponed, but it hasn’t been averted,” Rosenberg emphasized.

As for the reasons behind his view, he cites various factors, including clear indications of increasing consumer credit delinquencies. Rosenberg also believes that consumer spending may be on borrowed time due to projections suggesting that the substantial $2.1 trillion in excess savings accumulated during the global health crisis could be exhausted by the end of the third quarter. This is particularly significant as consumer spending accounts for 70% of GDP.

Additionally, there are concerning readings in the vital manufacturing sector of the economy. Although there have been slight improvements, both the Institute for Supply Management and S&P Global’s purchasing managers’ indexes continue to signal contraction.

Stagflation, however, isn’t solely a byproduct of an economic downturn; it also hinges on inflation. There are indications that inflation, although moderating somewhat, may persist for some time.

Most recently headline inflation, as measured by the August consumer price index, registered at 3.7% year over year, marking an increase from the 3.2% rate observed in July. As for core inflation, which is typically less volatile, it did decelerate from July (4.3% compared to 4.7%), but it remains firmly above 4%.

The prospect of an economic downturn coinciding with elevated inflation in the coming months raises the specter of stagflation. In a recent interview with the Times of India, J.P. Morgan CEO Jamie Dimon discussed how this could impact central bank policies, a perspective that has been given relatively little consideration.

Dimon: “In the worst-case scenario, we could see stagflation with a 7% outcome.”

Dimon’s primary concern revolves around central bankers facing the daunting task of combating inflation at a particularly precarious juncture for both domestic and global economies.

To lay the foundation for his apprehensions, Dimon makes a noteworthy observation about the initial stages of interest rate hikes in this cycle.

“First of all, interest rates went to zero,” Dimon pointed out. “Going from zero to 2% was almost negligible.”

This assertion holds weight, especially during a period officially marked by high inflation. The Federal Reserve began raising rates in March 2022 when the inflation rate stood at 8.5%. The magnitude of that first rate increase? A mere 25 basis points (with a touch of sarcasm).

In essence, the challenges posed by rate hikes in those initial months seemed relatively minor compared to the trials posed by inflation.

Dimon continued, “Going from zero to 5% caught some people off guard, but no one would have considered 5% out of the realm of possibility.”

“However, I am not certain if the world is prepared for 7%.”

Did he mention 7%?

“I ask business people, ‘Are you ready for something like 7%?’ The worst-case scenario involves 7% with stagflation.”

Certainly, stagflation remains a conceivable scenario. As discussed earlier, headline inflation has recently accelerated. While core inflation has been slowing, it remains comfortably above the Fed’s 2% target. These inflation rates persist as projections hint at a downturn and a potential recession.

We previously referenced economist David Rosenberg’s recession prediction, and there’s another perspective to consider.

“US economic growth will buckle under mounting challenges early next year,” asserts Erik Lundh, Principal Economist at The Conference Board, “resulting in a brief and shallow recession. This outlook is influenced by various factors, including elevated inflation, high interest rates, diminishing pandemic-related savings, growing consumer debt, reduced government spending, and the resumption of mandatory student loan repayments.”

Lundh goes on to suggest that these factors will significantly impact GDP next year, reducing it from a projected 2.2% in 2023 to a mere 0.8% in 2024. If inflation persists while output declines, it creates a situation akin to stagflation.

Dimon adds, “If they are going to have reduced economic activity and higher interest rates, stress will be evident in the system.”

The potential scenario of the U.S. economy grappling with stagflation prompts a consideration of what actions retirement savers might take to mitigate its impact on their savings.

Interestingly, while the challenge of combating higher inflation alongside low output is formidable, one of the world’s leading hedge funds suggests that there may be an asset that could offer some assistance.

Let’s delve into that topic as we conclude this week’s article.

The World Gold Council suggests that in the context of stagflation, gold could receive additional support.

Bridgewater Associates, the world’s largest hedge fund, stands out not only for its substantial managed assets but also for its pronounced affinity for gold. This includes the firm’s founder, Ray Dalio, who has consistently expressed his fondness for gold publicly.

In the past year, Bridgewater’s Chief Investment Strategist, Rebecca Patterson, had her eye on stagflation and emphasized the potential value that gold could bring in mitigating its impact.

Patterson and her Bridgewater team delved into economic scenarios and asset performance spanning a century, seeking to identify assets that exhibited strength during stagflationary conditions. Among their findings, gold investment emerged as a noteworthy asset, puns fully intended.

Reinforcing the case for gold investment planas a hedge against stagflation is analysis by the World Gold Council, which suggests that stagflation and gold are a potent combination.

According to the council’s report, stagflation is a climate that is exceptionally favorable for gold investment. In fact, the WGC’s research reveals that gold in U.S. dollars has been the top-performing asset during stagflationary periods since 1973.

The WGC notes, “Should stagflation become widespread, it could provide further support for gold trade market as a diversifier and risk hedge.”

One of the most compelling historical examples of gold trade investment’s ability to thrive during stagflationary periods was the “Great Inflation” of the 1970s and early 1980s. During this era, inflation surged, with the consumer price index occasionally reaching double digits while rarely dropping below 6%. The economy also experienced three recessions during this time. Throughout these challenging years, gold’s value increased by nearly 600% and silver also performed strongly with a 435% climb.

Returning to the present, the economic outlook remains highly uncertain. While some anticipate a recession, others do not. However, very few envision a “Goldilocks” scenario with no slowdown at all. It’s more likely that some degree of downturn will occur.

Then there’s the persistent issue of inflation, as discussed earlier. Many experts anticipate that inflation will continue to be a significant concern. Economist Mohamed El-Erian recently noted, “Headline inflation is going to prove much more complicated, and I think core inflation will be less well-behaved.”

Considering the Federal Reserve’s determination to bring inflation back to 2%, this could lead to prolonged periods of higher interest rates. In the view of J.P. Morgan’s Jamie Dimon, it could even result in significantly higher rates. If the economy finds itself contending with higher inflation, elevated interest rates, and lackluster growth, as Dimon suggests, stagflation could become a reality. In such a scenario, the already intricate landscape for savings and investments could become even more complex.

U.S. Economic Resilience Tested by Four Simultaneous Shocks

Analyzing four economic shocks and the role of gold as a hedge in times of uncertainty.  Get insights into the evolving financial landscape

Wall Street Journal Questions the Nation’s Resilience in the Face of Four Simultaneous Economic Shocks

When Augusta’s Director of Education, Devlyn Steele, presented his 2023 economic outlook back in January, he hinted at a prevailing theme of uncertainty. However, he may not have anticipated just how accurate his prediction would turn out to be.

One glaring example of this uncertainty materialized earlier this year with a banking crisis, marked by the second- and third-largest bank failures in U.S. history. The expected return to dovish monetary policy in 2023 also fell by the wayside, primarily due to the surprising persistence of inflation. Headline inflation saw a resurgence in August, while core inflation stubbornly refused to dip below 4%.

Another cause for concern is the surge in household debt. In the second quarter, household debt surpassed the unprecedented $17 trillion mark for the first time ever, with credit card debt exceeding $1 trillion for the first time during the same period.

However, just when we thought 2023 was offering a clear picture of near-term uncertainty, the Wall Street Journal recently raised the possibility of an even more uncertain future. The Journal pondered the potential impact of not one but four simultaneous economic shocks in the fall: an expanded auto-workers strike, a prolonged government shutdown, the resumption of student loan payments, and surging oil prices.

In recent months, some analysts who had earlier predicted a recession between late 2023 and early 2024 have revised their forecasts. Yet, as multiple shocks loom over an economy already grappling with two years of inflation and rate hikes, the question arises: was this change in sentiment premature?

As the Journal suggests, each of these “shocks,” if occurring individually, might not pose a significant threat to the nation’s economic stability. However, if they were to happen simultaneously, the combined impact could prove particularly challenging for the current state of the U.S. economy.

Gregory Daco, Chief Economist at EY-Parthenon, points out, “It’s the combination of all these factors that could disrupt economic activity.”

Let’s take a closer look at each of these potential shocks to better understand their collective implications.

Federal Reserve Chair Powell acknowledges the economy’s momentum but expresses concern about the “array of risks” currently present.

You might already be aware of the ongoing strike led by the United Auto Workers (UAW). This strike began on September 15, marking a historic moment as UAW members from Ford, General Motors (GM), and Stellantis (formerly Chrysler) simultaneously walked out of their workplaces for the first time in history.

Initially, UAW President Shawn Fain called for a strike involving around 13,000 workers at three plants. A week later, Fain extended the strike to include 38 parts-distribution plants operated by GM and Stellantis. Ford was exempt from this expansion because the union saw progress in its negotiations with the automaker at that time.

However, this truce didn’t last long. Last week, Fain decided to resume the strike against Ford and General Motors, expressing dissatisfaction with the negotiation process.

As of the most recent strike, approximately 25,000 workers, equivalent to about 17% of all UAW members at Ford, GM, and Stellantis, are currently on strike.

So far, the economic repercussions of the strike have been relatively mild. Nevertheless, this situation could change, especially considering UAW President Fain’s willingness to expand the strike as he sees fit.

According to a recent report from the Anderson Economic Group, the strike has already resulted in economic losses of approximately $4 billion in just the first two weeks. If the strike continues to grow in scale, as it appears to be doing, Goldman Sachs warns that it could lead to a weekly reduction in annualized GDP by as much as 0.1 percentage points.

And this is just the strike; we haven’t even addressed the other economic challenges mentioned by the Wall Street Journal.

University of Michigan economist Gabe Ehrlich believes that while neither the strike nor any of the other impending challenges may individually pose a significant threat to the economy, the situation could be different if they all strike simultaneously.

“I don’t expect the strike on its own to push the national economy into a recession, but there are other obstacles on the horizon,” Ehrlich commented. “When you combine all of these factors, it looks like the fourth quarter of the year might be a bit turbulent.”

Another potential obstacle is the looming possibility of a government shutdown.

An agreement was reached just in time last weekend to fund the government for another month and a half. However, this short-term solution doesn’t instill confidence that Congress will remain united beyond the current deadline, especially given Speaker Kevin McCarthy’s recent removal. Some analysts even suggest that McCarthy’s removal increases the likelihood of a government shutdown in the coming weeks.

Goldman Sachs: Increased Probability of Government Shutdown Due to “Leadership Vacuum.”

Jan Hatzius and the Goldman Sachs team have indicated that the dismissal of Speaker McCarthy has amplified the likelihood of a government shutdown.

Hatzius has expressed his concerns by stating, “With numerous policy disagreements still unresolved and a $120 billion gap between the parties regarding the preferred spending level for fiscal year 2024, it’s challenging to envision how Congress can pass the necessary 12 full-year spending bills before the funding expires on November 17.”

The Wall Street Journal points out that a partial government shutdown lasting five weeks in 2018 resulted in a 0.1% reduction in GDP for the fourth quarter of that year and a 0.2% decline in the first quarter of 2019. While it’s uncertain how applicable this guideline is to a similar shutdown in the current political climate, the absence of a speaker adds an extra layer of potential chaos to the government.

Brian Gardner, Stifel’s Chief Washington Policy Strategist, has raised concerns about how financial markets might react to governmental dysfunction.

Another pressing matter is the end of student-loan forbearance after three and a half years. When this relief measure was implemented in March 2020, approximately 11% of student loan balances were more than 90 days overdue, as reported by the New York Fed. While the 12-month “on-ramp” plan for the restart, which doesn’t immediately penalize late payments, is expected to mitigate the swift resurgence of delinquencies, some analysts believe an increase is only a matter of time.

In terms of the broader economy, the resumption of student-loan payments is anticipated to have a negative impact on consumer spending, which has exhibited resilience throughout the year.

Goldman Sachs has analyzed the potential cost to U.S. households, estimating it could reach around $70 billion per year. They further suggest that this could result in a 0.8-percentage-point decline in consumer spending growth for the fourth quarter, slowing it down to 1.4%.

Additionally, the renewal of loan payments is expected to negatively affect the personal savings rate, which had fallen to 3.9% as of July, among its historically lowest levels.

Another concern highlighted by the Wall Street Journal is the ongoing surge in oil prices, driven by production cuts by major producers. OPEC-plus initiated production reductions last year to bolster prices, and in July, Saudi Arabia announced an additional unilateral production cut of 1 million barrels per day. Russia followed suit with its own unilateral cuts of 500,000 barrels per day starting in August and an additional 300,000 barrels per day in the following month.

These production cuts pushed oil prices up by more than 20% over the third quarter, surpassing $90 per barrel, where they remain today. Some analysts now project that oil could reach north of $100 per barrel before the end of 2023.

One of the significant impacts of higher energy costs is their contribution to inflation. The headline annual consumer price index, which had been receding, suddenly accelerated in August, rising from 3.2% in July to 3.7%. This was largely driven by a 10.6% month-over-month increase in the gasoline index. If oil prices remain elevated or increase further, consumer price pressures, along with the challenges faced by the Federal Reserve, could intensify.

In summary, there are four economic risks, or “economic shocks” as described by the Journal, that could pose challenges for consumers and savers. Individually, each may not be overly concerning, but when considered collectively, they create a more complex economic landscape.

As Fed Chair Jerome Powell recently remarked, “It’s the strike, it’s the government shutdown, resumption of student loan payments, higher long-term rates, oil price shock… You’re coming into this with an economy that appears to have significant momentum. And that’s what we start with. But we do have this collection of risks.”

For some, navigating these economic risks as a collective challenge may be something we need to become accustomed to.

Analysts suggest that “Global Shocks Are a Persistent Reality.”

If any of us find ourselves surprised by the regular occurrence of economic shocks, perhaps we shouldn’t be, considering the long-term trends reflected in the World Uncertainty Index. Over the past two decades, the index has consistently shown an upward trajectory, particularly when compared to the relatively stable period from 1990 to 2000.

Between 1990 and 2000, the index experienced a 50% decrease. However, in the subsequent decade from 2000 to 2010, it witnessed a remarkable increase of over 200%. And in the extended period from 2000 to 2023, the index has surged by more than 400%.

In a Harvard Business Review article from the previous year titled “Visualizing the Emergence of Global Economic Uncertainty,” the creators of the uncertainty index suggested that a new era of global economic unpredictability has taken hold. Delving into the factors driving this shift, including “increased geo-economic fragmentation,” the authors made a bold assertion: “The presence of global shocks is now a permanent feature.”

In a rather striking evaluation, asset management giant BlackRock, in their “2023 Global Outlook” at the start of the year, described the current worldwide economic and geopolitical landscape as “the most complex global environment since World War Two, marking a clear departure from the post-Cold-War era.”

BlackRock further concluded that one of the outcomes of this heightened uncertainty would be a “new era of increased macroeconomic and market volatility, coupled with persistently elevated inflation.”

Another source of concern regarding the global economic system’s stability amid ongoing inflation challenges—and the corresponding response by central banks—came from J.P. Morgan CEO Jamie Dimon. In an interview with the Times of India, Dimon pondered whether the world would be “ready” for interest rates as high as 7%, adding that this could occur “with stagflation.”

Of course, whether the long-term projections of heightened uncertainty and volatility materialize remains to be seen. Nevertheless, even if we choose to be skeptical of such projections, we are acutely aware of four legitimate and potential economic shocks looming in front of us. These could pose significant challenges for the U.S. economy in the months ahead. In my opinion, they serve as a clear reminder that such shocks may always be lurking, emphasizing how little control we have over their timing.

Importance of investing in gold as a hedge against economic uncertainty:

  In the midst of these economic uncertainties and potential shocks, many investors are turning to gold as a reliable investment strategy. Gold has long been considered a safe haven asset, and its value tends to rise during times of economic turmoil. This trend has sparked growing interest among gold stock investors who are looking to capitalize on the precious metal’s performance.

 Gold’s intrinsic value and its historical role as a hedge against inflation and currency fluctuations make it an attractive choice for those seeking to diversify their portfolios. As the nation grapples with multiple economic challenges, including the risks mentioned in this article, investment in gold is emerging as a top trend among savvy investors, providing a sense of stability and security in an otherwise uncertain financial landscape. For more details visit goldinvestors.us

Unlocking Silver’s Investment Potential: Undervaluation, Supply Challenges, and Resilience in Economic Crises

Delve into the intricacies of ‘Bidenomics’ and its effects on consumer confidence. Explore inflation concerns and the broader impact on the US economy.

When it comes to silver investment, the first image that typically comes to mind is that of a shiny piece of silver. This association is quite understandable as silver has always held a certain allure, an almost mystical appeal, that doesn’t quite translate to silver coins Investment Company.

Perhaps part of this association is due to the color of the metal. Silver’s appearance exudes an exoticism that doesn’t readily apply to silver coins for investment, which often resembles the coins already jingling in your pocket, albeit much shinier.

Additionally, silver carries a reputation as an industrial metal, a characteristic that doesn’t apply to silver in the same way. Approximately half of silver’s overall demand comes from industry, a stark contrast to gold, where industrial demand accounts for less than 10% of its overall demand.

Moreover, the price gap between gold and silver is significant, especially at present. Currently, an ounce of gold hovers above $1,900, while an ounce of silver is priced just above $23. With the cost of one ounce of gold, you could acquire more than 80 ounces of silver.

This discrepancy leads us to the central theme of this week’s discussion: the apparent undervaluation of silver in the silver market investment.

The gold-to-silver ratio, which measures the price ratio of gold to silver, serves as a telling indicator. By historical standards, needing over 80 ounces of silver to purchase one ounce of gold is quite high, suggesting to some analysts that silver may presently be undervalued in terms of silver investment.

Historically, the gold-to-silver ratio has ranged between 50 and 60. A ratio exceeding 80 prompts experts like Alex Gordon, director at ETF Managers Group, to consider silver undervalued relative to gold for silver investment platform.

Taylor McKenna, an analyst at Kopernik Global Investors, concurs and believes that the relatively high ratio indicates silver might be poised for a significant performance surge in the silver market investment. McKenna suggests it wouldn’t be surprising if silver outperformed until it reaches its long-term 50-to-1 ratio average.

However, there’s another, more fundamental reason to suspect that silver could be undervalued for silver investment, and it ties into an unexpected subject: climate change. The prevailing global narrative on climate change underscores its reality and the belief that human activities are either causing or exacerbating it.

I won’t delve into that matter here, but the relevance lies in one of the universal solutions to combat climate change: the reduction of fossil fuel consumption, which releases carbon dioxide into the atmosphere. This solution often involves transitioning to clean or green energy sources, which could impact the silver market investment.

Remember when I mentioned earlier that about 50% of silver’s overall demand comes from industrial use? Well, the green energy movement, particularly the photovoltaic industry, is expected to substantially increase its demand for silver in the coming years in terms of silver market investment. Surprisingly, this expectation hasn’t yet triggered a significant rise in silver prices.

We’ll explore this issue further, along with another aspect related to meeting the projected demand: supply. Mining underpins the supply of silver for silver investment, but as you’ll discover shortly, silver mining faces notable challenges today in the silver market investment.

This leads us to our central question for the week: Is silver’s undervaluation merely apparent, or is there a genuine possibility that it is indeed undervalued, as some experts contend in the silver market investment?

Let’s embark on our exploration to find out.

The Supply “Squeeze” in the Silver Market: Increasing Demand Meets Diminishing Availability

When it comes to the ability of metals to conduct heat and electricity for silver investment, silver stands as the undisputed champion in terms of thermal and electrical conductivity. This inherent property has long made silver a prized commodity in industrial applications in the silver market investment. As the global green energy movement gains momentum, the allure of silver in this context has the potential to intensify further, adding pressure to an already dwindling supply in the silver market investment.

We’ll soon delve into the supply deficit, but first, let’s examine silver’s role in the green energy sector, particularly in the context of the surging interest in solar power and photovoltaics, which convert sunlight into electricity in the silver market investment. While we won’t delve too deeply into the technical intricacies, the basic concept involves the conversion of silver into a paste applied to silicon solar cells for silver investment. When sunlight strikes these cells, the resulting electricity flow is facilitated by this silver paste.

Of particular relevance to our discussion is how this technology is poised to impact silver demand in the foreseeable future in terms of silver investment. According to the International Energy Agency (IEA), solar photovoltaics are on track to surpass coal as a power capacity source by 2027. The IEA projects that cumulative solar PV capacity will nearly triple during this period, becoming the predominant source of power capacity. Additionally, a recent Bloomberg report highlights the development of a more “efficient” cell version, which requires a significantly larger amount of silver for silver investment, potentially driving demand even higher in the silver market investment.

Moreover, an academic paper published in December 2022 by researchers from the University of New South Wales suggests that the solar panel industry’s silver demand could reach a point where it consumes 90% of the world’s current silver reserves by the year 2050 in the silver market investment.

The second aspect of this discussion involves the corresponding limitation in supply for silver investment. To set the stage, earlier this year, the Silver Institute reported that global silver demand in 2022 surged by 18%, resulting in a substantial supply deficit for silver investment. According to the World Silver Survey conducted by the Silver Institute in collaboration with precious metals research consultancy Metals Focus in the silver market investment, the market faced a shortage of 237.7 million ounces of silver last year. This deficit is regarded as potentially the most significant in recorded history in the silver market investment. Philip Newman, Managing Director of Metals Focus, foresees a shift into a new market paradigm marked by ongoing deficits for silver investment.

In summary, the remarkable thermal and electrical conductivity of silver has always contributed to its industrial appeal for silver investment. However, as the green energy movement continues to gain ground, silver’s significance is poised to grow further, potentially straining an already constrained supply in the silver market investment. This imbalance between increasing demand and constrained supply is a noteworthy development in the silver market investment.

Expected Shortages of Silver Could be Exacerbated by Mining Difficulties

The prospect of heightened silver shortages may be compounded by challenges in the mining sector for silver investment. Primarily, approximately 80% of silver extraction occurs as a byproduct of lead, zinc, or copper mining operations in the silver market investment. In the case of primary silver mines for silver investment, the comparatively lower price of silver, when compared to metals like gold, often translates to thinner profit margins for mining companies in the silver market investment. Furthermore, the initiation of new mining projects can be a protracted process, taking up to a decade to commence fully in the silver market investment.

Beyond these considerations in the silver market investment, the mining industry currently grapples with additional hurdles for silver investment. According to Taylor McKenna, an analyst at Kopernik, environmental, social, and governance (ESG) factors have become substantial impediments to mining endeavors in recent times in the silver market investment. McKenna underscored that the mining landscape is becoming progressively challenging globally, especially in regions where silver deposits are abundant in the silver market investment. The heightened emphasis on ESG compliance may discourage investment and potentially have a significant impact on future supply for silver investment.

McKenna cited Peru as a case in point in the silver market investment. Peru ranks among the world’s top silver producers in the silver market investment, yet efforts within the country to increase taxes on mining companies have prompted many to delay or shelve their projects in the silver market investment.

Thus far, the anticipation of sustained silver deficits in the face of escalating demand has not significantly affected silver prices in the silver market investment. The question that remains is whether the prevailing market imbalance concerning silver can persist without ultimately exerting a positive influence on the metal’s price for silver investment, particularly given the momentum behind the green energy movement, which is expected to drive substantial silver demand in the years ahead in the silver market investment.

Analysts at Metals Focus point out that silver remains one of the most cost-effective options for industrial conductivity applications today and the favorable long-term demand outlook remains unchanged for silver investment.

Nonetheless, silver’s role extends beyond its industrial dynamics in the silver market investment. At its core, silver remains a monetary metal in the silver market investment. Thus, any coherent “secular” case for silver, grounded in its fundamentals, exists independently of its status as a precious metal that is sensitive to shifts in economic stability and monetary policies for silver investment. This multifaceted aspect of silver merits further discussion as we conclude in the silver market investment.

Silver has demonstrated superior performance compared to gold during certain significant economic crises in history for silver investment.

What makes this sensitivity particularly noteworthy, in my perspective, is the substantial outperformance of silver compared to gold during some of the most significant economic crises in recent memory. This capacity to excel during economically challenging periods, which are typically favorable for precious metals, is, in part, attributed to the relatively smaller size of the silver market

Compared to that of gold—approximately one-tenth the size—which tends to result in greater price volatility.

Consider the year 2020, often dubbed the “year of the pandemic,” marked by a U.S. recession, the highest U.S. unemployment rate since the Great Depression, and a return by the Federal Reserve to quantitative easing—the most accommodating of easy-money policies. While both gold and silver responded to these events, silver exhibited an even more remarkable response. As gold saw an increase of around 25% over the year, silver appreciated at nearly double that rate.

Then, cast your memory back to the global financial crisis a dozen years prior. During the tumultuous period from November 2008 through spring (April) 2011, gold witnessed a modest rise of just over 100%, whereas silver soared an impressive 385%.

Looking ahead, there’s speculation that the Federal Reserve may revert to an easy-money policy sometime in the coming year. Investment banks like Goldman Sachs are among those anticipating rate cuts in 2024. This potential scenario implies the possibility of more favorable monetary-policy conditions for both gold and silver compared to what we’ve experienced recently.

Silver’s tendency to respond positively during times of economic uncertainty, and sometimes even more emphatically than gold, underscores the multifaceted nature of this white metal. Moreover, its value as an industrial commodity could further increase if the world’s adoption of green technologies continues without significant interruption.

As for whether silver is genuinely undervalued at this moment, the answer remains uncertain and subjective, in my view. Each individual must form their own conclusions in this regard. Nevertheless, what appears to be less uncertain is that silver presents at least a reasonable degree of potential for those considering it as an investment opportunity.

Conclusion

Explore silver investment potential amid undervaluation, supply challenges, and its historical resilience during economic crises.