Silver Or Oil – What’s A Better Inflation Hedge?

Silver prices fell on Thursday as Federal Reserve Chair Jerome Powell continued to stress that inflation is not a concern while ignoring questions about rising bond yields.

Fed Chair Jerome Powell hinted that near-term inflation is likely to run hot as the economy improves, whilst also maintaining the central banks stance to keep monetary policy ultra-accommodative until its goal of maximum employment is reached.

Higher yields are starting to sound alarm bells, as this is a very strong indicator that a spike in inflation is just around the corner. Another key indicator of rising inflation – is higher oil prices.

This week, Oil prices surged to their highest levels in 14 months – with U.S Oil trading near $65 a barrel, whilst Brent Crude soared within striking distance of $70 a barrel.

Generally, Gold is considered as the ultimate hedge against inflation. However, I suggest keeping a close eye on Silver.

If history is anything to go by, then Oil’s performance as a tell-tale sign for what Silver might do next.

Silver and Oil prices have a very tight correlations during multi-year periods of boom, known as supercycles.

The previous two supercycles took place in the 1970s and the 2000s. In both cases, Silver prices tracked Oil prices identically and that trend is expected to re-emerge again – during the current commodities supercycle, which is just getting started.

During its last secular bull run in the 2000s – Oil prices rallied nearly 630%. But with a staggering gain of nearly 1150%, Silver solidly outperformed Oil before their parallel bull markets ultimately ran their course.

Today crude oil is up over 264% from the lows seen in April 2020, whilst Silver is only up 57%, during the same period. Even if Oil was to stop its advance right here in a secular sense, which I believe is extremely unlikely, then Silver still has massive upside potential from current levels.

Where are prices heading next?

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