Undervalued silver is sniffing out stagflation, prices could hit $40 this year, break $50 ATH in 2026

NEW YORK (June 6) After multiple failed attempts – even as gold hit new all-time highs – silver has finally begun its long-awaited breakout. But why now? Have the prospects for silver changed dramatically, or is the gray metal’s price rise reflecting something bigger?

To unpack the recent silver rally – its near-term drivers and longer-term potential – Kitco News spoke to Peter Krauth, author of The Great Silver Bull and publisher of SilverStockInvestor. Krauth believes that rising silver prices indicate a shift in sentiment within the broader market.

“I think it has a lot to do with the macro picture,” he said. “The idea of inflation has really become embedded in consumers' minds. The core PCE, which is the Fed's favored inflation measure, is currently at about 3.5%, and yet their target is 2%, so that's way above their target. And it ticked up over the first quarter from about 2.75% to 3.5% in a matter of a few months. That's core PCE, that measures actual inflation on consumption articles. And then, we know it may be an outlier, but first quarter GDP growth was down in the U.S.”

“You combine those things, and you've got a perfect setup for stagflation.”

“Will we see a second quarter of negative growth? I'm not so sure,” he added. “The first quarter may be a bit of an outlier, but it certainly is still concerning in terms of where the economy is going.”

Krauth said another bellwether for inflation concerns is the University of Michigan consumer sentiment survey, which has been flashing red in recent months.

“The one-year inflation expectation for consumers recently jumped; it just was dramatic,” he said. “It was right around 2.75%, it jumped to 6.5%. It shot straight up, over maybe a question of a month or two. This chart goes way back to the late 1970s, and we haven't seen this level since 1981. All of that says to me that consumers really are accepting that inflation is not only not going anywhere, but is likely to rise significantly over the next year, and even several years.”

Krauth said this is also being reflected in the bond market, where Treasury yields have been moving up as bond prices slide. “The TLT, which is the 20-year treasury bond ETF, looks like it's setting up to break down sometime soon,” he said. “Over the past year, this is looking like a third bottom. It could break down below that.”

Another good indicator of the inflation that may be coming down the pipeline is the 30-year Treasury yield index. “This goes back again to 1980, and it's been 40 years of falling, meaning bond prices have been going up,” he said. “And in early to mid-2022, it finally broke up above that declining trend line.”

“If you look at the bottom, where it was in 2020 at the height of COVID, we were looking at something ridiculous like 0.1% yield on a 30-year bond,” Krauth said. “And now we're at almost 5%, so it's 11 times higher.”

And $9 trillion of the $36 trillion in total outstanding U.S. debt is set to mature just this year. “They'll probably renew across the maturity spectrum, but still, there's no question it's a huge impact on the debt, because they have to service this, and the only way to service it now is by printing more,” Krauth said. “So I think the market is coming to grips with that.”

As for why silver is seeing a big bid on inflation fears in recent days while gold isn’t, Krauth believes that gold has already priced in a fair amount of inflation risk, while silver prices haven’t. 

The ongoing feud between Trump and Musk has also drawn more attention to the details of Trump’s budget bill, which Musk has criticized as extremely inflationary.

“I think that people saw Musk come in, he was coming in to do this huge slashing of expenditures,” Krauth said. “He's out, and Trump is pushing through a huge spending bill that's going to be, again, very inflationary, and that's why Musk is critical of it.”

“If you're looking for a very recent near-term driver on the silver side, that's probably what's pushing it over the edge,” he said. “That’s lighting a fire under the silver price.”

Going forward, Krauth sees some interesting potential dynamics playing out in the gold:silver ratio as gold may look overbought as trade deals come through, while the relatively undervalued silver continues to play catch-up.

“I think that we could see silver starting to catch up in the second half on that ratio aspect, with potentially an additional upside in gold,” he said. “I don't think it's going to be capped at $3,300 or $3,400 for the rest of the year. But let's say the average is something like $3,500 or a little bit higher in the second half. I think we can see the ratio come down... conservatively, you're probably looking at maybe 75 to one, somewhere around there.”

This would represent a silver price of around $45, which is just $5 short of the all-time high. And Krauth doesn’t think the gray metal would stop there, either.

“I've said multiple times in the last six months, I think we're going to see at least $40 in the second half of this year,” he said. “And I think we're going to see the $50 target taken out at some point next year.”

“Not only is $50 realistic, but potentially another $10 to $15 on top of that would not be unrealistic,” he added. “I've heard some very smart analysts, people who trade silver actively, and they've said the thing about the $50 historical ceiling on silver is that once it breaks through it, you're in completely uncharted waters.”

“We've never ever been above $50 in silver, so depending on the environment, it really could go anywhere.”

KitcoNews