In their monthly commodity report, Scotiabank went over their expectations for gold and silver in the face of what they refer to as the best economic growth in 40 years. This, of course, refers to the bank’s forecasts that the U.S. economy will expand by 6.2% this year and 4.4% in 2022.

Economic Forces Driving Gold Higher

These figures would normally be staggering, yet context is very much a key factor in this scenario. A growth of this magnitude has only been made possible in the form of a rebound from what most agreed was the biggest blow to the U.S. economy in the last century. Unsurprisingly, investors have been quick to adopt positive sentiment and have pushed both bond yields and the U.S. dollar higher, creating tremendous short-term pressure for gold.

Nonetheless, as gold price bounced back-and-forth between the $1,700 level, it pays to reassess the foundations on which the rebound, as well as the supposed growth, lie. To facilitate a recovery, the Federal Reserve had to commit to a zero-interest-rate policy along with pumping trillions of dollars into the economy. How soon and in what way this prolonged loose monetary policy will affect the nation has been the subject of plenty of speculation, but inflation seems to be on the mind of even the most optimistic market participant.

The newly-printed dollars have to go somewhere and wind up debasing the currency, and many economists believe that the effect could be felt the hardest in the form of a sudden inflationary spike. The general consensus is that prices for all base goods will see a considerable rise over the next five years. (In other words, inflation.)

$1,850 Average Gold Price per Ounce in 2021

In good part because of this, Scotiabank’s team is sticking to the average $1,850 gold price forecast for both 2021 and 2022. While the bank projects strong economic growth around the world, the ongoing negative developments surrounding the health crisis leave much to be desired in terms of certainty. It also pays to notice that countries around the world were reporting stagnant or contracting growth ahead of the crisis, with Germany’s manufacturing sector being just one example.

Regardless of how global growth unfolds over the next two years, Scotiabank sees silver as an investment that is poised to appreciate even more than gold.

Scotiabank’s Case for Silver

In the event of another flare-up, silver is well-positioned for a flock to safe-haven assets such as the one seen last year.

While manufacturing activity was contracting in 2019, industrial demand for silver was growing due to a heavy push for green energy, and it is also something that the Biden administration has emphasized. Silver is a critical component for solar panels, and also has eco-friendly uses in high-capacity batteries, water purification and electronics manufacture.

If the manufacturing sector indeed recovers as sharply as Scotiabank forecasts, silver stands to gain significant support so long as nations’ economies grow, and even more so as the developed world pivots toward a lower-carbon footprint.