Precious Metals Have Done Precious Little in the Face of Inflation
I wouldn’t mind a little positive market surprise today, next week, you name it, akin to the one we got last night at the final stop in Paul McCartney’s 2022 U.S. Tour, when the soon-to-be 80-year-old (his birthday is Saturday) was joined onstage for a few songs by Bruce Springsteen. The fact that McCartney is almost 80 and still is bringing it with gusto — he played a three-hour show — may be the real surprise. (Not so secretly, I was hoping that Ringo would show up, but no such luck.)
If nothing else, it was a few hours away from the volatility and craziness of this market, and the circumstances and forces that are driving it. Now, it’s back to reality, and the reality is that there is no big surprise on the horizon that will right this ship in a hurry. We are going to need to grind it out as the market grapples with finding a bottom, and that could take some time.
One of my disappointments has been the performance of precious metals, which have been behaving strangely in the face of inflation. Year to date, gold is up just 1% while silver is down 5%. While that may seem like a victory in the light of the year-to-date performances of the S&P 500 (down 23.6%), Russell 2000 (down 26.09%) and Russell Microcap Index (down 25.86%), it is a bit surprising.
The world has changed a lot since our last big go-around with inflation, and there are some who believe precious metals just aren’t the hedge they used to be. I am not quite there yet. It could be that metals have not yet been surprised enough by the level of inflation and were already pricing in the current level, don’t expect inflation to be more than a short-term phenomenon, and/or don’t presume that stagflation will set in.
In any event, I am holding on to exposure to silver via the Sprott Physical Silver Trust (PSLV) . This was my year-end 2021 best idea; it is down 6% since then, which is not a win in absolute terms but OK relative to stocks and significant portions of the bond market as well.
Keep in mind that I don’t see PSLV as an investment but rather a hedge against uncertainty and a way to inexpensively get exposure to physical silver. By the way, physical silver still carries a fairly significant premium to the spot price; a $1,000 bag of “junk” silver (containing 715 ounces) will set you back about $21,500, or just over $30 an ounce, which represents a 35% premium to the spot price.
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