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Investors sold off gold, silver and commodity stocks this month out of fear of rising inflation leading to higher interest rates. However, if you think it through just a little, it quickly becomes clear why this crisis is actually very positive for gold and silver.
With incomes remaining unchanged, higher energy costs (inflationary) lead consumers to cut back on other spending (deflationary). At the same time, companies are not easily able to pass on rising energy costs, as consumers are already under pressure and focused on saving. As a result, corporate profits may decline, prompting companies to cut costs.
In the tweet below, we already see a clear example close to home.
KLM, acting proactively, has announced a hiring freeze and various cost-saving measures, with CEO Marjan Rintel already warning of potentially more severe actions.
This is something we will see at many more companies worldwide, leading to a recession, faster-rising budget deficits and rapidly increasing government debt. And that is precisely what is highly positive for gold and silver.
In the tweet below, we already see the first indication of a more cautious consumer.
The eurozone consumer confidence index fell this month at the fastest pace in four years, reaching its lowest level since October 2023. This is a precursor to weaker consumer spending and retail sales, leading to a contracting economy and declining tax revenues for governments.
Rising government spending, combined with falling tax revenues and increasing bond yields, in turn causes budget deficits to rise even faster.
As Robin Brooks points out in the tweet below, countries with high levels of government debt (Japan, US, various eurozone countries, UK, China) are therefore heading into severe financial difficulties.
This increases the pressure on central banks to implement Yield Curve Control. In other words, to print such large amounts of money and purchase government bonds in order to prevent bond yields from rising above a set level.
Once investors realize that this is the direction things are heading, the increases in gold and silver seen in 2025 will be child’s play compared to what follows. Gold and silver will then rise dramatically!
As I already explained last week in this article, gold and silver mining stocks are currently ridiculously cheap and heavily oversold.
In our view, this is an ideal situation to start gradually accumulating small positions.
Jack Hoogland worked at the American Citigroup in Amsterdam, Düsseldorf, Madrid and Brussels as a Financial Analyst, Risk Manager and Finance Director. Jack has been following financial markets since the late 1980s and, after the financial crisis, increasingly focused on macroeconomics and the financial system. Read more from Jack Hoogland.
