Latest / Inflation and Your Money with Fexingo: Protecting Purchasing Power and Beating Inflation / How Silver Is Outshining Gold in This Inflation Cycle
Transcript
- Lucas: So gold is down two point seven percent over the past five days. That's GLD, the big gold ETF. And this is happening while CPI just ticked up again — the May print came in at three three four, up from three three two point four one. Core CPI is higher too. Luna: That's the part I keep tripping on. Sticky inflation, gold falling — that's not the usual dance. Lucas: Right. The ten-year breakeven inflation rate — that's the market's implied inflation expectation — actually rose to two point three one percent from two point two nine. So the market is pricing more inflation, but gold is selling off. Meanwhile, silver futures are up four point four percent over the same five days. Luna: Silver up four percent, gold down nearly three — that's a serious divergence. What's driving it? Lucas: Before we get into the numbers, I want to mention something quickly. A bunch of you have asked if there's a way to support the show. There is — buy me a coffee dot com slash fexingo. It's a couple of bucks a month, and it genuinely keeps these episodes ad-free and independent. If our conversations have helped you think about your own money differently, that's the place. Luna: Yeah, and it really does add up. Small contributions from listeners who find value here — that's what keeps the lights on. Lucas: Exactly. So back to silver versus gold. The gold-silver ratio — how many ounces of silver it takes to buy one ounce of gold — is around eighty-five right now. That's historically high. The long-term average is more like sixty to seventy. Luna: So silver is cheap relative to gold by historical standards. Lucas: Exactly. But the more interesting story is on the demand side. Silver is an industrial metal first, a monetary metal second. About half of annual silver demand comes from industrial uses — solar panels, electronics, electric vehicles, 5G infrastructure. Luna: And that industrial demand is booming right now. Solar alone uses something like a hundred million ounces of silver per year. Lucas: That number keeps climbing. The International Energy Agency projects solar capacity will double by 2028. Every new solar panel needs silver paste for its electrical contacts. EVs use about twice as much silver per vehicle as a conventional car. Luna: So silver has this dual identity — it's both an inflation hedge and a growth metal. Gold is purely a store of value. Lucas: Right. And that dual identity is why silver can outperform gold during certain phases of the inflation cycle — especially when the economy is still growing, which is what we're seeing. The S&P 500 is at seven thousand four hundred thirty-one, small caps — the Russell — are up three point one percent in five days. Luna: Growth is holding up. That's good for industrial metals. Lucas: It is. And then you look at the miners. GDX — the gold miners ETF — is actually up one point seven percent over the same five days. So gold miners are rising even as the metal falls. That's a signal that the market sees value in the producers. Luna: That's interesting. The miners are saying something different from the metal itself. Lucas: Right. And silver miners — those in the SIL ETF — have been even stronger. Silver producers have operating leverage to the metal price. If silver rises ten percent, their profits can jump twenty or thirty percent because their costs are mostly fixed. Luna: So the thesis is: if you believe inflation stays sticky and industrial demand keeps growing, silver and silver miners might be a better hedge than gold right now. Lucas: That's the case a lot of commodity analysts are making. But there's a risk. Silver is volatile — much more than gold. In the 2020 pandemic crash, silver fell nearly forty percent in a month. Gold fell about twelve. Luna: So you have to have the stomach for it. Lucas: You do. The other risk is if the economy slows. If industrial demand drops — say a recession hits — silver loses its growth leg, and it could fall harder than gold. Gold is pure insurance; silver is insurance plus a bet on manufacturing. Luna: Given the data we have — CPI still rising, the Fed holding rates at three point six three percent — what's your read? Lucas: My read is that we're in a 'higher for longer' inflation environment, but not a stagflation one. The economy is still adding jobs, growth is positive. That's the sweet spot for silver. The gold-silver ratio at eighty-five gives silver room to catch up. Luna: So you'd lean silver over gold here? Lucas: I'd lean toward a barbell. Keep some gold as a core hedge, but add silver for the upside if you believe industrial demand keeps growing. And within silver, consider the miners rather than the metal itself — you get leverage to the price and dividends. Luna: And the miners are already showing that leverage. GDX up one point seven while gold is down two point seven. That's a big divergence. Lucas: Exactly. The market is pricing in higher margins for miners, even if the metal price dips temporarily. That's a vote of confidence in the thesis. Luna: One more thing — what about the IPO headlines? SpaceX raising seventy-five billion, all that. Does that affect precious metals at all? Lucas: Indirectly. Big IPOs can suck liquidity out of speculative corners. But precious metals are a macro trade, not a flow trade. The bigger force is real rates and the dollar. The dollar has been steady, which removes a headwind for both metals. Luna: So the story is really about industrial demand versus monetary demand. Lucas: That's it. And right now, industrial demand is winning. Silver is the beneficiary. Whether that lasts depends on whether the economy keeps growing. If we get a hard landing, gold wins. If we get a soft landing or no landing, silver could keep outperforming.