Why Mike Maloney is Adding More Silver to his Portfolio

Mike Maloney

Mike Maloney is a long time advocate of precious metals which he calls real money. He often distinguishes the difference between currency which does not have a fix supply (more can be printed) and real money like gold and silver which has a finite supply. He is the host of the popular video series “Hidden Secrets of Money”, founder of the website GoldSilver.com and the author of “Guide to Investing in Gold and Silver”. He has spent years creating educational content on economic cycles, the history of money and why gold and silver are the ideal forms of money. Mike’s most recent update on the markets was released through his YouTube channel on 20 July 2022. 

He starts off by highlighting the significance of Fibonacci extensions and why he uses them to analyze gold price behavior. Fibonacci patterns are found throughout nature in many different domains, one of which is in animal herding patterns. Humans often act with a herd mentality and in this way Fibonacci extensions are often useful in price behavior analysis. Maloney drew two Fibonacci sequences on gold, one from the 2015 low and one from the 2020 Covid low, with both ending at the all time high of gold in August 2020. The gold price has bounced off a confluence of two key levels of significance from the Fibonacci he drew. He has highlighted this as a key level of interest to buy more precious metals.

Maloney did his analysis on gold as gold is the larger market and will usually decide the direction for silver’s price as it is the higher beta and lower market cap metal. Once Maloney had found what he decided to be a good buying point for gold he checked the gold silver ratio to determine which of the two metals was relatively overvalued and which was relatively undervalued. The gold silver ratio only shows the relationship between gold and silver and does not express the absolute value of either metal. Gold and silver are both undervalued relative to the Dollar or other fiat currencies. However with the gold silver ratio in the 90’s it appears that silver is highly undervalued relative to gold relative historical price data. Silver costs 1/90th the price of gold and there have only been a few times in history where silver was this cheap relative to gold. This implies that silver is not only undervalued relative to gold but is probably also hyper undervalued relative to the Dollar and other currencies. Silver has an asymmetric risk reward ratio as it has a large upside potential reward and a relatively low downside risk. 

Maloney then goes on to look at similarities and differences between the macro economic landscape of the past (1966 – 1982) and today’s macro economic landscape. In 1966 the S&P 500 and broader stock market took a downturn while inflation started to simultaneously rise. The stock market was range bound and stayed relatively flat for the next -+15 years before finally breaking up decisively in 1982. In this time of raging inflation the stock market was flat meaning the dollar and stock market were fairly priced relative to one another. However, due to the high inflation rate and because Nixon took the dollar off the gold standard in 1971, the absolute value of the dollar was slowly being destroyed. According to Maloney, the dollar lost about 70% of its buying power in this time. This means that stocks, which are priced in dollars, also lost 70% of their absolute value. Without the Dollar being backed by gold, central bankers are able to print money at will, devaluing the dollar in a way that it trends towards it’s intrinsic value of zero as many currencies have done in the past. While inflation wiped out 70% of the dollar’s value, gold held its value and increased 20x relative to the Dollar. Gold moved from $35.00 per ounce to $800.00 per ounce in a very short space of time.

Maloney draws attention to the funds held in checking accounts of the bottom 50% and top 1% of individuals in the US. Both charts have increased immensely since the pandemic. Maloney thinks that the excess currency in these checking accounts will leak out and allow the charts to return to normal levels at some time. When this currency leaves these checking accounts it will search for assets that will store value like gold, silver, commodities and land.

Mike Maloney

Since 2008 quantitative easing has been increasing the supply of currencies at a rapid rate which was simultaneously diluting their value. This currency value dilution or inflation was catalysed during the Covid 19 pandemic when the global economy was shut down and the Federal Reserve printed 7 trillion dollars of new currency. The increase in currency supply directly decreased the value of the dollar leading to the high inflation rates we see today. 

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