View from Crystal Bay: Silver, Gold, and Three Trillion USD

Investors aren’t limited to only investing in the S&P 500 and the Dow Jones Industrial Average. Every week we share the market trends we are following. We are interested in whether the trends in those markets are continuing or if they are experiencing a temporary or complete reversal.

When we identify trends, we are only concerned about the price data and what it says about any given market. We don’t need to know why a trend has formed to invest, but our human nature wants to understand what is driving them. Each week we try to offer some perspective on what we think the most substantial moves are and what critical drivers are behind them. Here we look at what is going in our globally diversified, non-correlated Crystal Bay Ubitrend strategy.

Last week’s continuing trends:

  • Silver 
  • Gold
  • Nickel
  • New Zealand Dollar
  • US Treasuries

Last week’s reversing trends:

  • Coffee
  • Cotton
  • European Rapeseed
  • Orange Juice 
  • Lumber

What we are taking note of: 

With gold at all-time highs, silver making a breakout, and US dollar weakening, there can no longer be a doubt: we’re entering an inflation scare.

Since March, the US broad money supply (as measured by M2) grew by $3 trillion, or 19.5%. That is an unprecedented number. M2 has never grown above 15% year on year. Even in the inflationary 1970s, its growth rate peaked at 12.5%.

The danger of inflation is now the highest it’s been in my career. That is true for most professional investors; I’ve only met a handful of people who were investing during the 1970s and learned the costs of high inflation from experience. And those costs are not trivial. Inflation destroys the value of stocks as well as bonds. High and accelerating inflation devastates the value of savings exactly at the time when living costs are mounting. It’s a double whammy that is particularly painful for retirees.

How are we heading into next week? 

Precious metals provide insurance against inflation. The cost of that insurance is rising, just like the cost of flood insurance tends to go up when weeks of rain swell the rivers and the levees spring a leak. Financial markets are sensing a coming storm.

The Crystal Bay Ubitrend has positions in Gold and Silver, as well as in a number of industrial commodities that have historically done well during periods of inflation.