The silver ETF iShares Silver Trust (SLV) bounced back following the latest deprecation of the U.S. dollar against leading currencies also contributed to the recovery of SLV. The recent lower than expected JOLTS report also provided some back-wind for bullion bulls. Let’s examine some the recent developments in the U.S. inflation and treasuries and their relation to SLV.
The fear of inflation is a known factor to steer investors towards precious metals. The following chart might be the reason some are concerned of a potential rise in inflation in the near term.
The chart above shows the changes in U.S. core CPI (excluding food and energy) and M2 money supply between 2012 and 2014 (up to date). As you can see, M2 has picked up at faster pace than the U.S. core CPI in the past couple of years. In fast, during the past couple of years, the M2 money supply rose by an annual rate of around 5%, while the core CPI increased by less than 2% per annum.
Does this mean there is a potential spike in U.S. inflation lurking around the corner? Maybe, but I doubt it. The rise in M2 is mainly driven by the implementation of the last asset purchase program of the FOMC. Even though the Fed expanded its balance sheet, this move hasn’t translated to the U.S. economy overheating. This explains the relatively low and stable inflation figures.
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