Latest / Stagflation Conversations with Fexingo: High Inflation, Slow Growth, and 1970s Echoes / The Silver Lining in Stagflation's Gloom
Transcript
- Lucas: So Luna, we talk a lot on this show about the gloom of stagflation — sticky prices, sluggish growth, the whole 1970s rerun. But there's a corner of the market that's quietly thriving, and it's not gold. I'm talking about silver. Luna: Silver? I mean, gold gets all the attention as the classic stagflation hedge. What's silver doing differently? Lucas: Look at the numbers. Gold's up around four thousand three hundred eighty dollars an ounce, which is impressive. But silver's been hovering near sixty-five dollars an ounce, and the gold to silver ratio has been compressing. That ratio — how many ounces of silver one ounce of gold buys — has dropped from about eighty-five a couple years ago to under seventy now. That's a big move. Luna: So silver is outperforming gold on a relative basis. Why is that? Lucas: Part of it is the dual demand story. Gold is mostly a financial asset — you buy it for store of value, central bank reserves, jewelry. Silver has that same monetary appeal, but it's also an industrial metal. Think solar panels, electric vehicles, 5G infrastructure, medical devices. When the economy is growing slowly but still growing — real GDP is running at about one and a half percent annualized — industrial demand doesn't collapse. It just chugs along. Luna: Right, so silver gets a bid from both the inflation-hedge crowd and the actual factories using it. That's a pretty unique position. Lucas: Exactly. And the supply side is tight. Silver mine production has been pretty flat for years, and a lot of silver is actually produced as a byproduct of copper, lead, and zinc mining. So even if silver prices go up, miners don't just flip a switch and produce more. That supply inelasticity is a big deal when demand is ticking up. Luna: I remember you mentioning on a previous episode that gold miners were becoming the new bond hedge. Is this a similar vibe with silver miners? Lucas: It's related, but silver miners are a different beast. They're more volatile — higher beta, as they say. When silver moves, the miners can move two or three times as much. That's great when things go up, but it cuts both ways. So if you're looking at silver miners as a stagflation play, you have to have a strong stomach. Luna: Let's talk about the broader backdrop. The July CPI report came out this week — headline CPI at 332.8, core at 336.8. Core is still creeping up. That's the sticky part. Lucas: Yeah, the year-over-year core rate is still around three percent, which is above the Fed's target. And the ten-year breakeven inflation rate ticked up to two point two seven percent. That's the market's expectation for average inflation over the next decade. It's not screaming, but it's telling you that investors are still worried about persistent price pressures. Luna: So in that environment, silver becomes a way to play the 'higher for longer' inflation narrative, without going all-in on gold. Lucas: Precisely. And there's another factor: the dollar. When the dollar weakens, commodities priced in dollars, like silver, tend to rise. With the budget deficit surging to its highest level since March 2021, there are real questions about the dollar's long-term strength. That's a tailwind for precious metals broadly. Luna: But wait — isn't silver also vulnerable to a recession? If growth really stalls, industrial demand could drop. Lucas: That's the risk. If we tip into an actual recession, silver could get hit harder than gold. But right now, the data doesn't point to a hard landing. Unemployment is at four point one percent, which is low. Job openings are easing — down to about seven point three million — but that's a gradual cooling, not a collapse. So the base case is slow growth with sticky inflation — stagflation, in other words. And that's arguably the sweet spot for silver. Luna: So for our listeners who are building a stagflation-resistant portfolio, how should they think about silver? Lucas: First, don't think of it as a gold replacement. Think of it as a complement. Gold is your core inflation hedge; silver is more of a tactical play with industrial upside. A common rule of thumb is to keep silver exposure at maybe five to ten percent of your precious metals allocation. And if you want to avoid the volatility of mining stocks, you can look at physical silver or an ETF like iShares Silver Trust, which trades under the ticker S-L-V. Luna: That makes sense. And we should note that silver's industrial applications aren't going away. Solar is a huge driver, and with the push for green energy, that demand is structural. Lucas: Absolutely. Solar panels can use up to two-thirds of an ounce of silver per panel. As solar installations keep growing, that's a steady stream of demand. And EVs use about twice as much silver as combustion engine cars. So even in a slow-growth economy, these secular trends are supporting the metal. Luna: So what's the bear case? What could go wrong? Lucas: The bear case is a sharper slowdown than expected. If real GDP growth goes negative, industrial demand could fall fast, and silver could underperform gold. Also, if the Fed somehow gets inflation under control quickly and raises rates aggressively, that could strengthen the dollar and pressure silver. But right now, the Fed is in a tricky spot — they can't hike too much without killing growth, and they can't cut too fast without reigniting inflation. That's the stagflation trap. Luna: It feels like we're in a period where silver is reflecting that tension between growth and inflation. Lucas: Exactly. And that's why it's such an interesting asset right now. It's not just a passive hedge — it's a bet on how this tension resolves. If we get more of the same — slow growth, sticky inflation — silver should continue to do well. If we get a genuine recession, you'd want to be careful. But if we somehow get a productivity boom that lifts growth without inflation, silver could still benefit from industrial demand. It's a fascinating setup. Luna: Before we wrap, I want to go back to something you said earlier about the gold to silver ratio. For our listeners, what's the practical takeaway? Lucas: The ratio is a simple way to gauge relative value. Historically, it's averaged around sixty to seventy. When it's above eighty, silver is cheap relative to gold — that's a potential buying opportunity. When it's below fifty, silver is expensive relative to gold. Right now, it's around sixty-eight, so it's kind of in the middle. But the trend has been downward, which suggests silver is gaining favor. Just keep an eye on it — it's a useful barometer for the precious metals complex. Luna: So if you're someone who wants to add silver to their portfolio, you might be looking at a window that's not as attractive as it was a year ago, but still reasonable. Lucas: Right, and like any investment, don't chase it. But for those who believe in the stagflation narrative, silver deserves a serious look. It's a unique asset that sits at the intersection of inflation hedging and real-world industrial demand. Luna: I think that's the key takeaway — silver isn't just a bet on inflation, it's a bet on the future of technology and energy. And in a slow-growth world, that's a pretty powerful combination. Lucas: It is. And you know, if walking through the economy with us has made something click today, the way this show stays ad-free is through listener support. If you found this useful, you can help keep the lights on at buy me a coffee dot com slash fexingo. Luna: Yeah, every little bit helps us keep digging into topics like this. It's what lets us stay independent. Lucas: So let's leave it here: silver is more than just poor man's gold. It's a metal with one foot in the financial world and one in the industrial economy. And in a stagflationary environment, that dual nature might be exactly what makes it shine.