This is how silver price hits new all-time highs
(Kitco News) The fiscal and monetary disorder will trigger a move into alternative assets, and silver has the most "explosive" upside potential, said Tavi Costa, Crescat Capital portfolio manager.
"Silver is the cheapest metal on earth. And I will continue to buy it because it doesn't deserve the sub $30 an ounce price tag. We're going to see flows of capital coming into the space. It's a very thin market, and I would expect to see an explosive move to the upside," Costa told Michelle Makori, editor-in-chief of Kitco News.
The worrying inflation narrative is a large part of the story here as investors start to rotate into tangible assets.
"It's a mix of the '40s and the '70s. The wage spiral growth like we saw in the '60s and '70s, with financial repression from policymakers, where you have very low interest rates relative to our inflation. This is the most aggressive interest rate policy we've seen in history," he said. "Inflation will become psychological to consumers at some point. The genie is out of the bottle in terms of that."
On top of that, there's a "reckoning" moment coming for equity valuations, which are disconnected from their fundamentals. On a scale of one to ten, Costa said that the U.S. equity market risk is at an eight.
"We are at all-time highs in terms of valuations across any other decade or time in history. I'm very concerned about that. I don't know how you will be able to justify that if the cost of capital begins to rise due to inflation," he said. "We'll have a rotation out of overvalued names."
This is happening when commodities are very cheap, with the commodities-to-equity ratio at 50-year lows. Costa said his play is to buy commodities to hedge while shorting equities. "People are starting to buy into alternatives of the monetary system. And gold and silver will play into that role in a large way."
One of the most critical drivers for owning gold and silver is the fiscal and monetary disorder. Costa pointed out that a lack of organic growth is driving policymakers to either print more money or take more debt while suppressing interest rates. This is stagflation in its early stages, he added.
And silver plays right into this thesis. "Silver fits right in between this monetary disorder, which we see throughout the world. At the same time, there's an issue with the lack of exploration in the gold and silver space, with silver being a major one here. Supply is going to start playing a major role in impacting prices," he said.
In order to reach all-time highs, silver first needs to move above $28 an ounce. Once that is hit, the precious metal can go straight to $35 an ounce. "At $35, we're going to hit another resistance. And then we are off to the races to hit new highs," Costa said.
To find out how Costa advises to best play the silver market and to learn about the winning silver miner stock picks, watch the video above. Follow Michelle Makori on Twitter: @MichelleMakori.