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SLV: Silver To Shine During Inflationary Equity Bear Market

Jun. 05, 2020 4:35 PM ETiShares Silver Trust ETF (SLV)SP50036 Comments
Stuart Allsopp profile picture
Stuart Allsopp


  • The U.S. economy is transitioning from deflation to stagflation which should see the SP500 fall while commodities and precious metals rally as has typically been the case.
  • Equity bear markets tend to be associated with rising inflation which we believe reflects the lagged impact of prior reckless monetary and fiscal policies.
  • The more the Fed looks to prevent equity market declines via easing measures, the more likely it is that it will further undermine wealth creation and real equity prices.
  • We continue to expect silver to outperform given its current valuation discount relative to an average of the broad commodity complex and gold prices.
  • By further undermining production and increasing the fiscal burden, the ongoing riots add further support to our view of real asset outperformance.

We are growing increasingly confident that the U.S. economy has passed the deflationary phase of the economic cycle and is heading firmly for stagflation. This should see metals prices move higher as equity prices move lower. We continue to see silver as best placed to benefit from this transition and see the iShares Silver Trust ETF (NYSEARCA:SLV) doubling relative to the SP500 over the next 12 months.

Silver Is A Great Bear Market Hedge

Equity bear markets tend to be associated with rising inflation and commodity prices which we believe reflects the lagged impact of prior reckless monetary and fiscal policies. The equity bear markets of the early 1970s, the late 1980s, and the early 2000s were all periods during which commodity prices, in particular precious metals, rose.


Source: Bloomberg. Bars represent 12-month periods.

The failure of silver to act as a safe haven during the March crisis should not be taken as a sign that the metal is a poor hedge against equity bear markets. The March shock reflected a perfect storm of deflationary forces, with positive feedback loops triggering self-reinforcing dollar strength and deflation pressures. These forces now appear to have gone into reverse and their self-reinforcing nature suggests that price pressures could be about to surge.

Money Demand: The demand for dollars in times of crisis tends to be a positive function of its price, meaning that when the dollar rose in March, demand for it rose as those in debt were forced to find dollars to pay debts back and those not in debt demanded dollars as a store of value. These forces now appear to be going in reverse. We have seen the dollar weaken across the board over the past two months and the more it weakens, the greater the likelihood that such weakness reduces the

This article was written by

Stuart Allsopp profile picture
I am a full-time investor and owner of Icon Economics - a macro research company focussed on providing contrarian investment ideas across FX, Equities, and Fixed Income based on Austrian economic theory. Formerly Head of Financial Markets at Fitch Solutions, I have 15 years of experience investing and analysing Asian and Global markets.

Analyst’s Disclosure: I am/we are long SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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