Feb 27th 2013 7:30am est
What is sequestration?
Given that recent polling suggests that most Americans don’t really understand what sequestration means or how it will affect the economy, it might be worthwhile to spend a little time covering the basics. The plan started nobly enough as a threat to both parties of what cuts would be put into place if comprehensive reform could not be agreed upon. The theory was that if each party had some of its most cherished spending targets threatened, it would foster more cooperation and compromise.
And this matters for silver because …
There are two primary effects that sequestration can have on the price of silver and, thus, silver-based assets. First, the loss of that many jobs coupled with all of the ancillary impacts will probably cause a recession. This is bullish for precious metals as a flight to safety occurs. The inflation effect favors investment in the commodity. The other impact is on inflation. As I mentioned, higher unemployment will lead to increased Fed action, which will almost certainly create inflation. Inflationary pressures are beneficial to all silver assets.