New year, new hope for gold and silver investors

Silver and gold prices way underperformed investor expectations in 2021. Perhaps most frustrating of all, the fundamentals were there, driving unprecedented retail demand for physical bullion.

Inflation fears crept into markets. The Fed maintained ultra-accommodative monetary policy including zero interest rates and massive debt monetization. 2021 was also a nasty year for confidence in major institutions.

Nervous buyers switched paper assets into physical metal at a record pace.

Seasoned metals investors know great fundamentals don’t necessarily mean rising prices. Price discovery in the paper markets is broken. In the short run, it can be totally disconnected from the factors driving supply and demand for physical.

One of the big questions for 2022 is whether we will see better price performance.

In the longer run, fundamentals do matter. That is why gold and silver prices are multiples of what they were twenty years ago. This year the case for owning physical gold and silver promises to get even stronger in the months just ahead.

Price inflation will continue to rage. Higher wages, supply chain troubles, and labor shortages are not going to disappear any time soon. Deliberate government and central bank actions are responsible for the turmoil.

Americans can expect more economic interventions, restrictions, mandates, and artificial stimulus. Officials in Washington DC show little interest in changing their approach.

The moment of reckoning cannot be far off for the Fed. The central bank is caught between spiraling price inflation and markets hopelessly addicted to never ending stimulus.

Fed bankers are trying to maintain the illusion they can quickly step in and control the erosion in the Federal Reserve Note’s purchasing power without putting the US economy into the ditch. They are telegraphing rate hikes starting by midyear.

The central planners at the Fed can’t make a compelling case as to why markets will tolerate higher rates this time. They would like people to forget they have tried, and failed, before. The last attempt ended almost before it began when the stock market puked all over rate hikes in the fall of 2018.

A collapse in confidence in the Federal Reserve Note is not likely in 2022. But that event will draw nearer when Fed bankers once again demonstrate there is no way out of the stimulus trap.

Monetary and political turmoil will drive more Americans to acquire gold and silver.

Futures traders employed by large banks will continue to release massive quantities of paper gold and silver contracts into the market. They will also keep taking the short side of those contracts and pushing paper prices in their favor whenever they see the opportunity.

If global demand to take delivery of physical rises, the paper price of metal will eventually follow.

A breakout is coming. It may be a question of whether it happens in the futures market or after all trust in the futures market evaporates.