Silver could be the poster child for the new commodity bull supercycle - Wells Fargo
(Kitco News) - The silver market continues to recover from its recent rollercoaster ride after retail investors, organized through social media, tried and failed to induce a short squeeze to drive prices higher.
Looking through the market's recent volatility, one fund manager said that the precious metal is still on track to outperform as the commodity sector sees the start of a new super bull cycle.
John LaForge, head of real asset strategy for Wells Fargo, said that silver's long-term fundamentals remain the most important story for the precious metal. He added that the market is still in great shape as the failed short squeeze didn't last long enough to damage investor demand.
His comments come as silver prices manage to hold critical support above $27 an ounce. March silver futures last traded at $27.365 an ounce, relatively unchanged on the day.
"The hype in silver only lasted a couple of days, and the market is big enough that there is no lasting damage in the market," he said. "There wasn't enough time for a lot of investors to get hurt."
LaForge added that with the market starting to normalize, he hopes that investors stop being distracted by social media and focus on silver's fundamental story, which sees shrinking supply and growing demand.
LaForge added that this is the trend that appears at the start of a new super bull cycle.
"You have about a 10-year period where it really pays off just to be in this space, you leave them alone, you just own them," he said.
LaForge said that silver could be the poster child for the new bull cycle as mine supply has fallen consistently for the last five years.
"We're at a point where we really aren't opening up any more mines," he said. "It is going to take meaningfully higher prices to open up new mines."
While investors continue to digest silver's social-media-induced frenzy, LaForge said that this is pretty much on par for the course. He explained that bloggers were trying to drive up silver prices during the last bull market cycle by spreading false reports about peak silver.
"Obviously, those reports turned out to be false," he said.
Turning to gold, LaForge said that although the price is struggling to find new bullish momentum, the market remains healthy. He added that stabilizing silver prices and rising platinum prices are all signs of strong demand in the precious metals sector; however, instead of focusing on gold, investors are looking for value in other metals.
"Gold is just kind of finding its stride again," he said.
As equity markets continue to hit record highs on nearly a daily basis, LaForge said that investors aren't focused on safe-haven assets like gold. He added that a correction in equities could bring new focus on the precious metal.
The spark that could prompt a rotation out of stocks and into gold is inflation pressure, LaForge said.
He noted that it's only a matter of time before inflation pushes higher as central banks will be forced to maintain ultra-loose monetary policies in perpetuity.
"Central banks have really painted themselves into a corner. Yes, monetary policy is supporting economic growth right now, but if there is any little hiccup this year or next, then they are going to have to throw more money into the system," he said. "We're just printing money and printing money. I think gold is biding its time right now until that next problem comes."