November is historically a lousy month for silver. The last eight years have led to the price dropping between nearly 3% and as much as 10%. Seasonality doesn’t just play a role in energy prices.
This week sees a significant and long-awaited decision from The Fed. Last week’s price action in silver showed that fears of stable inflation are still causing the dollar to get a bid and the metals to be sold off. Somewhat ironic that in any other environment, one would assume this is deflationary given that gold and silver’s performance should be contrary.
So The Fed meeting that concludes on Wednesday, Nov. 3, should reveal some more macro guidelines that will pave the economic horizon into 2022. It is widely expected we will find out when and how much the taper will be following this meeting. However, there was one potentially enormous stumbling block here, and that was last week’s data showing the economy had recovered at a much slower pace than expected when GDP figures were released.
Will that be enough to stop Powell tapering? Perhaps it may delay it. However, how the major stock markets react to this will be critical in maintaining the narrative. We are firmly in the camp that tapering will not last long, nay it could well be a false dawn as bigger spending plans from Biden will require further Fed money printing. Let’s not forget the S&P500 is currently well over 200% against its average P/E ratio.
Another narrative against silver is interest rates, which we may or may not find out this week. Again, interest rate hikes could collapse the system as we know it, and Powell has been extremely shady about his terminology on “maximum employment” Over five million jobs in the US under pre covid levels is a long way to go.
Is this a hint of rate hikes being delayed? In the UK, the economy is in a much better place, and rate rises are widely expected to be revealed by the Bank of England this week. It will be interesting to see how the FTSE reacts to this, which could set a precedent across the world. Then we also have nonfarm payrolls this Friday. All three previous events could well lead to a paper dump. We have seen it all before.
So if we are to arrest the trend of a typical November for silver, some fundamentals need to be pointing in the right direction. Well, here are a couple of those very things.
Around two weeks ago, The Royal Mint ran out of silver rounds. This should have been more of a story than it was. December 2020 saw one of the most significant investment months in gold and silver on record, and that was before the r/WallStreetSilver crowd began to gather pace. We are still seeing huge premiums on silver, and several big-name coin shops in the UK are sold out of high-demand coins and bars. The Perth mint also has its back to the wall at the minute with mass inquiries against their stock levels.
Next, Andrew Maguire reported recently that Turkey has bought out wholesale silver, having paid huge premiums. Details are sketchy. However, 1000oz bars seem nearly impossible to get your hands on in 2021, with delivery backlogged well into next year. This is certainly an intriguing development, as you usually do not pay significant premiums when ordering extensive inventories at wholesale.
Supply and demand fundamentals still do not seem to drive silver higher, yet investment demand will skyrocket in this market once the derivatives break. The downtrend and sideways movement in the two monetary metals has lasted over a year now. However, we are still convinced that we will look back at this period in a few years and wish we bought more.