Why I'm Changing My Allocation of Silver and Gold From 80/20 to 50/50

I've been touting triple digit silver since 2021. But now that the price of silver has surpassed the century mark per troy ounce, I judge that the case for owning gold may be stronger than the case for owning silver. However, recognizing that there is a significant probability of this prediction being wrong, I'm only going to a 50% silver allocation versus a 50% gold allocation. This keeps me in a good position regardless of which of these precious metals has the greater appreciation in price. And I judge that the price of both silver and gold are headed higher. 

In the case of silver, I think the adage that the cure for high prices is high prices may come into play. If the price of silver keeps rising, there could be significant demand destruction. A key driver of the rise in price of silver could evaporate.  If the industrial use of silver declines (solar panel usage as an example) the excess consumption versus production that has been in effect since 2021 may reverse. For reference, according to the Silver Institute states:

• Overall, 2025 will see the fifth successive deficit; albeit lower y/y, it is still estimated at a sizeable 95Moz. For 2021-25, this results in a cumulative deficit of almost 820Moz. 

The other primary driver in the increase in price of silver is that it is a monetary metal. And given the size of US debt ($35.8 trillion) and the almost certain likelihood of continuing enormous budget deficits, the rational for US investors to buy silver to protect again inflation remains incredibly valid. And time will tell whether this week's events have given added momentum to the "sell America" trade.

GOLD

So while the price of silver is likely to continue on an upward path due to its monetary value, I judge that the pure play monetary metal play, gold, may be a better investment. A huge driver in the increase in the price of gold has been its accumulation by central banks. And central bank buying (40 tons per month according to the World Gold Council) is a bazooka that does not have a silver buyer equivalent. While gold is used for jewelry, dentistry and has industrial applications, these are minimal compared to its purchase as a financial asset.

Thus, I'm reallocating gold to being an equal weigh portion of my investment portfolio versus silver  due to it being a more of pure play for protecting myself from US monetary debasement. 

CAVEATS

Will I regret reducing my position in silver? Maybe:

1. The available supply of above ground silver is very tight. There could be a silver short squeeze that drives the price much higher. I just saw a prediction that it could drive the price to $500 per ounce. That seems a bit out there, but $150 to $300 an ounce is not totally out of the question.
2. The market for silver is 1/10th the size of the market for gold and the price is much more volatile. Thus, if the increase in buying demand for silver is anywhere near that of gold, then the increase in the price of silver will outpace that of gold.

Historically, the gold to silver price ratio is 50:1 to 80:1. As if April 2025 it had gone to 100:1, meaning that an ounce of gold was worth 100 ounces of silver. But recently the ratio has compressed back to about 50:1. Given that the ratio in the ground is 7:1 (7 times as much silver), further compression of the ratio is certainly possible, but my guess is that it is headed back toward the middle of the historical range.

Spineless, Shortsighted Republicans Are Going To Get Wiped Out In 2026 Midterm Congressional Elections

The President's party has lost seats in the House of Representatives in each of the last 5 mid term elections.  According to Poynter "Political scientists call this the “thermostatic” effect — voters adjust how they vote, as they would a home thermostat. The common pattern of voters from the opposition party being more energized to vote is closely related; it stems from anger serving as a stronger motivator to vote than contentment." 

Here are the results by election: 

This trend will be exacerbated by Trump's unpopularity and by the Republican's in the House: a) failing to take a stand during the confirmation process for his awful Cabinet nominations; b) refusing to push back on his stupid tariff actions, c) taking no action on Trump's Executive Orders; and d) remaining silent in regard to the plethora of Trump's other unhinged actions and statements. The Republican party now owns the actions of Donald Trump, Robert Kennedy Jr, Kash Patel, Pete Hegseth, and Elon Musk. 

A significant reason for the failure to stand up to Trump is the threat of being primaried by a MAGA candidate. These threats puts the Republican control of the House in a no win situation. If a moderate Republican Congressman stands up to Trump and then gets primaried by a MAGA candidate, it would be a tough election. But by not standing up to Trump, these Republican Congressman will be incredibly vulnerable in the general election due to Trump's unpopularity. And further, if a sitting Republican Congressman loses in the primary to a MAGA candidate, many of Trump's selections will get trounced in the general.

How many seats in the House will the Republicans lose. Much depends how things go between now and November 2026 midterm election? But I will be surprised if control of the House does not revert back to the Democratic party.

Read More:

DOGE Could Have Been A Huge Win, But Sledgehammer Approach May Lead To Nasty Blowback

Trump's Economy: Higher Inflation, Reduced GDP Growth, and a Larger Deficit

DOGE Could Have Been A Huge Win, But Sledgehammer Approach May Lead To Nasty Blowback

The Federal budget cutting that Donald Trump and Elon Musk unleashed could have been a huge win. DOGE would likely remain popular if it focused on the following: 1) cutting fraud and waste; 2) eliminating DEI spending: 3) a hiring freeze, and 4) retirement buyouts. But the sledgehammer approach DOGE has taken will likely turn a win into a loss. The downside of indiscriminate actions such as the mass firing of Federal employees with less than 1-2 years of experience (probationary employees that don't have Civil Service protection) may give Democratic Congressional candidates potent ammunition in 2026.

Time will tell what the downside of the sledgehammer approach to budget cutting will be. Here are a sampling of some of the issues that may appear in 2026 Democratic attack ads:

1) IRS cuts during tax season may lead to slower refunds

2) FAA cuts may lead to more flight delays

3) Forest Service cuts may lead to more damaging forest fires

4) FDA cuts may lead to slower approvals of life saving drugs. 

5) Energy Department cuts may lead to even slower approvals of project approvals that could reduce power outages

6) Health and Human Services cuts may lead to fewer services for transgender people (about 1% of the US adult population)

And in addition to the above, an unexpected black swan event(s) are likely to develop that will have a negative impact. There will be lots of potential ammunition for Democratic attack ads

Beyond the negative impact of reduced Federal government service on a broad swath of the US population from the firing of probationary employees, the human cost to these fired individuals is beyond measure. While some will find new jobs quickly, others will be totally screwed by their loss of income. Expect their heart wrenching stories to be featured in attack ads. 

Conclusion

A odds of blue wave in the 2026 Congressional elections seems reasonably high. And while DOGE cost cutting currently enjoys significant popularity, my guess is that the sledgehammer approach may be a big factor in Dems being able to generate a strong turn out of motivated voters.

Trump's Economy: Higher Inflation, Reduced GDP Growth, and a Larger Deficit

Higher Inflation

Listening to an interview this morning with Trump's senior counselor for trade and manufacturing, Peter Navarro, it provided an example of how Trump is surrounding himself with sycophants that are unlikely to push back on his obsession with tariffs. Trump and Navarro are going through mental gymnastics to avoid admitting that tariffs are a tax that will have an inflationary impact is on the US economy.

Navarro and Trump bring up three examples to make a case for the benefits of imposing tariffs on US imports. 

1) From 1798 to 1913 tariffs accounted for over 50% of US Federal Revenue. Sure, using a precedent from the horse and buggy era is convincing.

2) President Trump speaks fondly of William McKinley, the 25th U.S. president who was a strong advocate for tariffs.  But did the McKinley tariff of 1890 work? It was meant to protect domestic industries, but raised prices and became extremely unpopular. It led to the Democrats gaining the majority in the House, ousting 83 Republicans, and overturning the tariffs in 1894. 

3) Navarro stated that Trump's first term tariffs did not raise inflation. While most economists agree with this conclusion, the American Economic Association takes a negative view about the tariffs

In the wake of this increase in trade protection, the United States experienced substantial increases in the prices of intermediates and final goods, dramatic changes to its supply-chain network, reductions in availability of imported varieties, and the complete pass-through of the tariffs into domestic prices of imported goods. Therefore, the full incidence of the tariffs has fallen on domestic consumers and importers so far, and our estimates imply a reduction in aggregate US real income of $1.4 billion per month by the end of 2018. 

The first Trump administration tariffs were targeted and only applied to products valued at about $380 billion in 2018 and 2019 and generated approximately $80 billion in revenue (not even enough revenue to cover two weeks of the US Federal deficit). 

But while the tariff revenue Trump plans to raise is a moving target, it seems appropriate to guess his broad based tariffs will be a multiple of the revenue of his first term's tariffs.

According to the Tax Foundation, historical evidence and recent studies show that tariffs are taxes that raise prices and reduce available quantities of goods and services for US businesses and consumers, which results in lower income, reduced employment, and lower economic output.

Not surprisingly, the supporters of tariffs fail to mention the 1930 Smoot-Hawley Tariff Act, the most recent example of the US implementing hefty tariffs. It significantly raised tariffs on a variety of imported goods in an order to protect American industries and agriculture. However, it had profound negative consequences on international trade. One result was that Europeans retaliated with their own protective tariffs, leading to a decline in global trade. The Smoot-Hawley tariffs deepened the economic collapse of the Great Depression. Hmmm, what are the chances of our trading partners launching retaliatory tariffs or of reducing travel to the US.

Reduced GDP Growth

US deficit spending has been an important factor in the strength of the US economy. While it is critical to rein in the huge deficit, the chainsaw that Musk and the DOGE commission are welding may have a short term negative impact on the  US economy. The spending and employment cuts are coming prior to the other actions that could serve as a counter weight (regulation cutting, reduced taxes, and drill baby drill).

Larger Deficit

Trump's proposed tax cuts could reduce Federal revenue by as much as a trillion dollars per year even if the Tax Cut and Jobs Act is extended. Check out the chart from the Committee for a Responsible Federal Budget for details on Trump's proposed SALT Relief, and cuts to taxes on Tips, Overtime Pay, Social Security, and Domestic Production.

Conclusion

The stock market has moved higher since Trump's election. Time will tell if the the stock and bond market continue to gain between now and the Congressional elections in 2026. And trying to predict inflation, GDP growth, and the US deficit following the 2026 elections, particularly if Democrats gain control of the House, seems beyond the capabilities of my crystal ball.

Will The Reports On The Gigantic US Trade Deficit Ever Push The Price of Gold and Silver Higher (in US dollars)?

There were a bunch of financial reports this morning. But the one that caught my attention was the US trade deficit. Essentially, the rest of the world provides the US with stuff and they get US fiat in return. The U.S. trade deficit in goods widened 6.3% to $102.7 billion in July, according to the Commerce Department. IMHO this should have crushed the US dollar and this should have led to the price of gold and silver in US$ going higher. But the other reports were mostly good news, so interest rates went up, pushing the US dollar index (DXY) higher, and a drop in the price of gold and silver futures was what actually occurred.

The US trade deficit reports are seldom market moving news. But for gold and silver investors that are protecting themselves from US dollar debasement it's a data point that seems like it should be meaningful. How much longer will the rest of the world want to hold US dollars and give us stuff in return for fiat as the US debases the dollar via the enormous trade and Treasury deficits?

Size of US Treasury Note Auctions This Week Is Stunning Given April Is Rare Month When Net Revenue Is A Surplus

As I type this, this morning's price of silver is down over a dollar an ounce and gold is down over $64 an ounce. But glancing at the size of the US Treasury Note auctions has me more convinced than ever that an upward trend is the price of gold and silver continues to be inevitable.

The US Treasury is auctioning $173 billion in notes this week. The ongoing debasement of the dollar in order to cover the immense US spending deficit seemingly ensures that the price of gold and silver is headed higher.

Treasury Note Auctions This Week

$69 Billion - 2 Year Notes - 2/23/24

$70 Billion - 5 Year Notes - 2/24/24

$44 Billion - 7 Year Notes - 2/25/24

Total - $173 billion in Note auctions this week

Last year, the US ran a deficit in 10 out of 12 months. April was a rare surpus month ($177 billion) due to the timing of the April 15 tax deadline. But regardless of the fact that the Treasury may be in surplus this month, there is little relief in their need to raise dollars via auctions.

Am I making too big a deal out of one deficit figure? Maybe. The total being raised by the US Treasury this week is lower than most recent weeks. Specifically, Bill sales are lower than most recent weeks ($215 billion this week versus $300 billion or higher weeks not being unusual.) And there are not any bond auctions this week.

Regardless, the growing amount the US Treasury needs to auction off every week to refund the expiring $34 trillion in debt and to cover the deficit is eventually going to crush the US dollar and lead to the price of gold and silver skyrocketing higher

Protect yourself from US dollar debasement. Consider allocating a significant percentage of your investment dollars to precious metals. 

Personally, I am a fan of silver because it offers more leverage than gold. However. this also makes it more risky than gold as the downside moves, as well as the upside moves, are larger than for gold.

If you are interested in direct exposure to the price of silver, take a look at the PSLV etf. It's the silver ETF preferred by many silver bulls. 

My favorite option for buying silver is offered by First Majestic. Their prices are competitive for all buyers, and they offer a $0.50 an ounce discount to stockholders.   

Full disclosure - I'm a First Majestic stockholder (stock symbol - AG). 

2024 Is Likely To Be Another Year With A High Level Of Hurricane Intensity

According to https://tropical.atmos.colostate.edu/Realtime/index.php?arch&loc=northatlantic, the accumulated cyclone energy of North Atlantic cyclones has been above 95 for each of the past 8 years (2016 thru 2023) and above 100 for 7 of the last 8 (2022 was the outlier with 95). Comparing this result to the previous 30 years, 14 out of the previous 30 years had accumulated energy below 95 (47%). I doubt many readers of this blog will be surprised by the fact that years with accumulated cyclone energy of North Atlantic hurricanes with high intensities are becoming more frequent.

I conducted this review because I speculated it highly likely that given the warmer ocean temperatures, that the Carribean Islands, Atlantic and Gulf of Mexco coastal communities are likely to be devastated by the next round of hurricanes following the flip of ENSO to La Nina.

However, when comparing accumulated energy years to El Nino and La Nina years, I found that while there is definitely a correlation, it is not as strong as I had expected to find https://ggweather.com/enso/oni.htm. While El Niño generally tends to suppress Atlantic hurricane activity, and La Niña tends to enhance it, an eyeball review of the results suggests that it does not appear to be highly predictive of whether there will be destructive hurricane activity in 2024. Thus, if there is a flip of the ENSO cycle from El Niño to La Niña, as some forecasters are predicting, it makes a devastating hurricane season more likely but not a certainty.

While coastal communities may not be as vulnerable to hurricanes in 2024 as I had supposed before starting this review, I fear that the warmer ocean temperatures will lead to more devastating Atlantic hurricanes in the not too distant future during both El Niño and La Niña years.