If inflation cools, is gold or silver a better investment?

The pandemic has plunged the United States into a period of economic uncertainty and market volatility. Interest rates hit their lowest level, followed by runaway inflation and the Fed’s 11th consecutive rate hike cycle.Although it was an uneasy environment, it turned out to be beneficial precious metals investor.

“In 2020, gold rose 21% from the time COVID-19 was announced on February 11 to the end of the year,” said Chief Operating Officer and Co-Founder of Los Angeles-based Allegiance Gold. says Alex Ebkarian.

From July 2023 onwards, the US appears to have found some footing. The federal funds rate is stable and the inflation rate is stable between 3% and 4%. Additionally, the Fed said in a recent FOMC statement that it aims to reduce inflation to 2% and is unlikely to raise rates this cycle.

But what does that mean for precious metals investors? gold or silver Is there an edge? Below we will elaborate on the opinions of some experts.

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If inflation cools, is gold or silver a better investment?

In a less inflationary environment, each precious metal may be more favorable to investors if:

When gold becomes a better investment as inflation cools

Investing in gold has historically been an effective method. inflation hedge.the price It tends to rise when inflation rises. However, other factors can affect its value.

When geopolitical tensions are rising

“Even if inflationary pressures ease, geopolitical tensions (such as Ukraine and the Middle East) and trade disputes with China and the EU could further increase demand for safe-haven assets such as gold,” Evkarian said. says.

He explains that gold’s role as a store of value and hedge against geopolitical risks can support gold prices even during periods of subdued inflation. This is evidenced by recent trends in gold.

“On March 8, 2024, gold reached an all-time high of $2,178.80 per ounce due to a variety of reasons: central bank acquisitions of gold (led by China), continued geopolitical tensions around the world, “There are signs that interest rates will be cut, and the Bank Term Funding Program (BTFP), which provides low-interest loans to banks in need of liquidity, will end,” Evkarian said.

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If the US dollar continues to weaken

A weaker US dollar is also a factor to consider.

“If the dollar continues to weaken, gold should continue to perform for investors,” said Sean Casterline, president of Delta Private Wealth LLC. “Gold has hit new highs.” .

He explains that gold investors are more focused on the US dollar than on inflation. “Lower inflation is not the kiss of death for gold,” Casterline said. “As we see today, it’s quite the opposite.”

If economic uncertainty persists

Other economic uncertainties also come into play.

“Gold is likely to remain an attractive investment even as inflation slows amid continued economic uncertainty and currency depreciation,” said Liam Hunt, Content Director at Gold IRA Guide. . Hunt said he believes gold is likely to exhibit significant price resilience even if inflation falls to the Federal Reserve’s target level.

When Silver Becomes a Better Investment as Inflation Cools

Silver has primarily industrial uses, so it can be a better investment than gold in some scenarios.

“Increasing industrial demand for current applications such as electronics, solar energy, automotive manufacturing (electric vehicles), and medical care will increase the price of silver if demand for these applications increases over time,” Evkarian said. he says.

He added: “Silver seems to have benefited more from industrial demand than inflation as of late, and unlike gold, it has not reached all-time highs. This, coupled with falling valuations, has led to a decline in silver’s “It has significantly increased its value,” he added. Even if inflation subsides, it will still be attractive to investors.”

Casterline also notes the value of silver in industrial applications.

“Gold tends to be a trade of inflation and fear, but silver is actually used in the products we make, many of which are technology-related,” he says. Casterline added that silver could outperform gold over the long term if the economy grows and inflation is contained.

both and gold and silver Each has its own benefits, so investors can benefit from investing in both, even when inflation is cooling.

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Will inflation continue to cool down?

The Fed has set an inflation target of 2%, but not everyone thinks inflation will continue to trend downward. “Many investors don’t believe that inflation is cooling down because the pinch of high prices is still being felt everywhere,” Evkarian said.

Casterline is also skeptical. “Despite inflation trending down, the US dollar is also trending lower. This is one of the main reasons why inflation has become more ‘sticky’ recently. Perhaps gold is telling us that inflation isn’t going to fall that much. “As we think,” he said.