Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / How Stagflation Is Reshaping the Silver Market
Transcript
- Lucas: Silver has been on an absolute tear. Spot silver closed at $70.15 an ounce yesterday, up more than eight percent just in the last five trading days. And if you look at the year so far, we're talking about a gain of roughly thirty percent. Luna: That's a big move for a metal that's often overshadowed by gold. Is this purely a stagflation trade, or is something else going on? Lucas: Both, and that's what makes this interesting. Silver has this dual personality — it's a monetary metal, like gold, that people buy when they're scared of inflation. But it's also an industrial metal, critical for solar panels, electronics, medical devices. So you have two demand drivers converging at the same time. Luna: And right now, the macro backdrop is tailor-made for that. The CPI print last week showed consumer prices up 4.2 percent annually, the highest in three years. Meanwhile, real GDP growth is limping along at 1.6 percent. Lucas: Exactly. Stagflation — high inflation plus slow growth — is the classic environment for precious metals. Gold has hit records too, but silver tends to be more volatile. In the 1970s, silver went from under $2 an ounce to nearly $50, then crashed. So the question is: does this rally have legs, or is it history repeating? Luna: Let's talk about the industrial side first. What's driving demand there? Lucas: Solar energy is the big one. Silver is a key component in photovoltaic cells — each solar panel uses about twenty grams of silver. With global solar installations growing at something like twenty-five percent a year, that's a massive and growing source of demand. The Silver Institute estimates that solar alone accounted for about fifteen percent of total silver demand last year. Luna: And that's before you factor in the push for electrification and the Iran conflict driving energy prices higher. The ECB just hiked rates for the first time since 2023, partly because of energy-driven inflation. Lucas: Right. Higher energy costs make solar more attractive economically, which boosts silver demand further. Then you have the electronics side — silver is used in everything from smartphones to electric vehicle batteries. So the industrial demand story is strong. Luna: But supply isn't keeping up. Mine production has been flat for years, and recycling is only a small fraction. Lucas: That's the key. Global silver mine output peaked back in 2016 and has been basically stagnant since. A lot of mines are facing declining ore grades, higher costs, and longer permitting times. So you have demand growing at maybe three to four percent annually while supply grows at near zero. That's a recipe for higher prices. Luna: Now layer on the investment demand side. People are scared. Inflation is sticky, the Fed is in a bind — they can't cut rates because inflation is too high, but they can't hike because growth is weak. Lucas: That's the stagflation trap. And retail investors have noticed. There's been a surge in purchases of silver coins and bars. The U.S. Mint sold over two million ounces of American Eagle silver coins in May alone, which is nearly double the pace from a year ago. Luna: So both industrial and monetary demand are pushing in the same direction. But I've heard the argument that silver is just 'poor man's gold' and that it doesn't have the same store of value properties. Lucas: It's true that silver has more industrial exposure, which makes it more cyclical. But in a stagflation scenario, that industrial demand can actually be a tailwind because of things like solar. And silver is much more volatile than gold — when gold goes up ten percent, silver often goes up twenty or thirty. That cuts both ways, of course. In a crash, silver falls harder. Luna: If you look at the data, silver's price to gold ratio is still historically low. An ounce of gold buys about ninety ounces of silver right now. The long-term average is around sixty. Lucas: That's a metric a lot of precious metals watchers follow. They'd argue silver is undervalued relative to gold. But that ratio can stay low for years. In the 1970s, it was below twenty at the peak of the silver bubble. Luna: Talking about bubbles — there's a lot of chatter on social media about silver being manipulated or about a coming short squeeze. How seriously should we take that? Lucas: Look, there have been allegations of silver manipulation for decades. The CFTC has investigated, there have been lawsuits. But the idea of a retail-driven short squeeze in silver — like what happened with GameStop — is much harder to pull off because the market is so much bigger and more liquid. The Comex has position limits, and the banks can always deliver physical metal. Luna: Still, the narrative is out there, and it's driving some buying. But I want to bring this back to the stagflation theme. If we're in a period like the 1970s, what does the playbook say for silver? Lucas: The 1970s were actually a wild ride for silver. It went from around $1.50 in 1971 to nearly $50 in 1980, then crashed back to $10 by 1982. That spike was driven by a combination of inflation fears, the Hunt brothers trying to corner the market, and industrial demand. But the crash was brutal. So the lesson is: silver can be a great hedge, but timing matters enormously. Luna: And today, we have some similarities — inflation, geopolitical tensions, energy shocks — but also differences. Central banks are more aggressive on rates, and the dollar is still strong. Lucas: The dollar index has actually been fairly resilient, which normally puts a lid on commodities. But silver is rallying anyway, which tells you the demand is real. The key risk is if we get a recession that crushes industrial demand. Real GDP growth is already slowing, and some leading indicators are flashing yellow. Luna: If you're an investor listening, what's the takeaway? Should they buy silver here? Lucas: I'm not giving investment advice, but I think silver makes sense as a small allocation within a diversified portfolio for someone who's worried about stagflation. The problem is timing — after a thirty percent rally, you're not exactly buying low. But the structural story — growing industrial demand, constrained supply, and persistent inflation — suggests the trend could continue. Luna: And if listeners want to follow this more closely, what should they watch? Lucas: Keep an eye on the upcoming CPI and PCE reports. Also, look at the JOLTS data and jobless claims — if the labor market cracks, that could signal recession and hurt industrial metals. And watch the COMEX silver inventory levels. If they keep falling, that's a bullish signal. Luna: Before we wrap, I want to mention something that's been on my mind. We spend a lot of time here helping people make sense of this confusing economy. If you find that useful, there's a way to support the show directly. Lucas: Yeah, it's a small thing, but it makes a big difference to us. If walking through the economy with us has made something click, you can buy us a coffee — literally, at buy me a coffee dot com slash fexingo. No pressure, no perks, just knowing the show helps you think clearly. Luna: Exactly. It keeps us independent and ad-free. Now back to silver — one last thing I want to touch on is the role of central banks. Are they buying silver like they buy gold? Lucas: Not really. Central banks overwhelmingly buy gold for their reserves, not silver. Silver doesn't have the same status as a reserve asset. So that's one area where the demand story differs. Silver's rally is being driven by industry and retail investors, not by sovereign buyers. Luna: That makes it more speculative in some ways. But also more responsive to supply and demand fundamentals. Lucas: Right. And that's why silver can be such a powerful trade if you get the direction right. But it's not for the faint of heart. We'll be watching how the next few months unfold. Thanks for listening. Luna: We'll be back next time with another angle on stagflation. Until then, keep your eyes on those economic indicators.