In recent months, there has been significant speculation surrounding the narrative of dollar debasement. For the purpose of analysis, we will operate under the assumption that this debasement phenomenon is indeed occurring and seek to understand its implications on the rising prices of gold and silver. Utilizing mathematical correlations between gold and silver returns, we aim to ascertain a fair value for silver based on its performance.
Analysis of the data reveals a notable correlation in the 50-day percentage changes of gold and silver, indicated by the trend line formula “y = 1.2223x.” This suggests that for every 1% change in gold prices, silver prices typically adjust by approximately 1.2223%. Currently, silver has exhibited a staggering 97% change compared to gold’s 20%, marking a significant deviation from historical norms since 1970.
Further analysis using regression shows that the calculated fair value of silver stands at $59.25, suggesting that it is presently traded at a 38% premium. It is important to note that this finding does not imply an imminent decline in silver prices or a dramatic rise in gold; rather, it simply highlights the extent of silver’s recent outperformance in the short term. While the debasement theory may have its merits, it appears that silver has experienced excessive gains.
In economic news, attention is turning towards the “reflation narrative,” indicating potential sustained economic growth alongside subdued inflation. Recent discussions highlighted a rebound following a decline in market performance, and amidst rising commodity prices, economic growth remains moderate. The relationship between commodity prices and economic indicators is crucial, as the former tends to be a precursor to changing economic climates.
New economic data confirms a robust third-quarter GDP growth rate of 4.4%, the highest in two years, with projections for continued strength at over 5% for the fourth quarter according to the Atlanta Fed’s GDPNow model. Moreover, the PCE price index demonstrates controlled inflation, with core PCE increasing by only 0.2% in November. These elements suggest that the Federal Reserve is unlikely to implement rate cuts in the near term.
While growth indicators appear strong, caution is warranted as the labor market shows signs of weakness. If employment does not improve despite economic growth, the potential for a shift in monetary policy may arise later in the year.
Investors and market participants are encouraged to stay informed as tomorrow’s economic updates and market conditions will be critical in shaping financial strategies.