Silver Prices Could Explode in 2022 on War or Rate Fears

[GoldCore]

Will the 2022 Ukraine war push silver higher than the 2022 FED interest rate hikes?

Wars are bad for people. Wars are also bad for the governments and armies that lose. 

Winning armies gain glory. But who pays for the wars?  Armies have always been expensive to equip and sustain.

Here is the first secret…no one pays for wars.  Instead, immense amounts of money get printed or borrowed, and the economies of both combatting countries pay the bill over two successive generations. 

This is why physical metals prices benefit from war – because their price moves higher to reflect the increasing money supply.

And here is the second secret.  Either army could lose a war. Because losing countries don’t get a chance to set the rules after losing a war, winners do, debt and money issued by any combatant country during times of war carries extra risk. 

That risk is called counterparty risk.  Counterparty risk represents the chance the money you hold was issued by a country or government which might not exist once the war ends.

Physical metals have zero counterparty risk and thus a second reason prices rise during the war.

Effects of War on Silver

Using silver in American dollars as an example here are a selected list of price moves during wartime.

The Korean War from 25 June 1950 until 27 July 1953 saw a silver rise from US$.73 to US$.85 while touching US$.90 along the way.

And it is important to note that silver never ever fell below US$.85 again! So, the Korean war pushed silver up 16% across 3 years. 

Vietnam was a long war from 28 February 1961 for the United States until 7 May 1975. Silver was US$.92 when the war started and US$4.40 when the war ended.

Once again, the silver price ran even higher during the war, touching US$6 twice in 1974. The Vietnam war pushed silver up 378% across 14 years.

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Afghanistan was another long war. It really began in 2001 and shared a common history with the Iraq war.

Accepted dates are 7 October 2001 until 30 August 2021. War began with silver at US$4.40 with a finish at US$23.77 and peaking at US$49.48 in 2011 at the halfway point. Across 20 years silver moved up 440%.

Using the math above of 16% plus 378% plus 440% we know wartime saw silver move a total of 834%. That 834% spread across 37 total years.

Using just the super simple math we should expect that on average silver rallies 22% during war years. 

22% on top of today’s silver price takes us from US$22.64 up to US$27.62 should war begin in Ukraine but last a single year.

No one wants war. But this NATO versus Russia problem over the future of Ukraine does not seem to have any other solution.

When USSR fell the UK and USA and Russia all agreed to guarantee the safety and independence of Ukraine.

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The three countries did this in writing with the purpose of convincing Ukraine to part with nuclear weapons it inherited from the collapse of the USSR. 

But today Russia has new ideas about the future of Ukraine – namely that Russia wants Ukraine to serve as a buffer space between NATO and Russia. War to impose the buffer by force is increasingly likely. 

Higher Silver Prices in 2022?

However, 2022 is a very complex year. Working against higher silver prices are the central banks.

They will spend the year raising interest rates and also shrinking the money supply. Higher rates are theoretically bad for gold and silver.

And silver gets the worst of it when prices fall. Current Fed interest rate forecasts predict at least three rate hikes in 2022 with rates rising from .25% up to 1.15%. 

If rising rates in 2022 were the only factor silver prices could decline to US$18.60 per ounce, at least for a little while.

That target price comes from the reference to silver’s US$18.60 level prior to COVID-19 starting in the fall of 2019.

So, will the rising rates defeat the war drums and push silver lower?  Well, the US$5 guesstimate of a war premium is greater than the US$4 drop estimate from rising rates.

Therefore, if both things happened the net effect should be a silver price rise.

Silver Price Chart

The chart above is a rare very long-term graph of spot silver back to 1955, using a logarithmic scale. Nobody knows the future.

But we do know that physical metals have no counterparty risk. And on balance, the quick analysis above shows silver should have a good year if both events occur.

[CANV]

Good read..   when central banks start tightening they nearly always set rates higher than predicted and hike for longer and often faster …

but pm’s can gain in a tightening scenario 

[StackemHigh]

I'd find a large movement in spot silver price highly unlikely but a steady increase in the price of gold totally viable.