Gold and silver hit record prices yesterday, with the former trading above $4,400 (£3,275) an ounce for the first time. An ounce of silver hit a record of $69.44 — more expensive than a barrel of oil.

Although silver has been rising for a while — 138% in the year-to-date — two trigger points this year sent the rally into overdrive. First was the speech by Federal Reserve Chair Jerome Powell in Jackson Hole in August, which signalled that the central bank would be moving towards an easier money policy. Second was the November speech by New York Federal Reserve Governor John Williams, which laid the groundwork for a December cut to the Fed’s interest rate. In the interval between their speeches, silver rose 25%; in the brief time since Williams’s, it has shot up another 40%.

The message from markets seems clear: traders are betting that central banks in Western countries, where deficits are soaring, are going to inflate away debts by printing money. To shelter from the collapse in the value of fiat currencies, investors are thus parking money in assets whose supplies no central bank or government can change.

It’s also revealing to observe what isn’t rallying just now: cryptocurrency, or what was meant to be digital gold. Over the last month, Bitcoin has more or less stagnated, and it’s down some 10% in the last year — and nearly 30% since the peak it set earlier this autumn. Contrast that with the precious metals: in the last month, gold is up nearly 10% and silver 40%.

During most of the post-2008 cheap-money era, Bitcoin successfully exploited the debasement trade. But now that this trade appears to have entered a new, possibly more risky phase, traders are resorting to their atavistic shelters in a storm. It says something that faced with the choice between human creations, like fiat money or cryptocurrency, and nature’s ancient stores, like gold, silver and other precious metals, investors are putting their faith in the latter.

This will present central banks with a dilemma in 2026. Do they stick to their plan of relative easing and risk the value of their currencies further collapsing, or do they shore up their defences to do the one job for which they are ultimately responsible: preserving trust in the money they manage? If currencies continue falling relative to gold, that will eventually work its way into other commodities, such as industrial metals, which in turn will enter the economic supply chain. Inflation could worsen, and government bonds could fall, driving up interest rates. That could ultimately create a market panic. Already, bond yields have begun to show upward pressure, with interest rates on the long-term debt of most developed economies up between 0.15% and 0.25% just in the last month. This doesn’t look like a vote of confidence in money.

It’s hard to overstate the degree to which the stability of the modern economy rests on faith in the value of money. That faith is now faltering. It’s not yet in crisis, but central banks have been put on notice: if they remain complacent amid the surge of gold and silver, the markets could abandon them.

It bears noting that the last time silver overtook the oil price like this was in the early Eighties. What followed was the great inflation, the leap in interest rates, the plunge in markets and the advent of recession. This future hasn’t yet been set in stone. But a similar fiscal crisis is now a very real possibility.

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John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).

jarapley

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