Category Archives: silver-rounds

Last Friday, United States Federal Reserve Chair Jerome Powell said “the time has come” to begin lowering interest rates, a process that will likely begin at the Fed’s Sept. 17-18 meeting.Markets are widely anticipating a 25-basis-points cut, or even 50 points if the economy looks weak and needs a stronger monetary boost. More reductions could follow before year’s end.

If the Fed follows through, it will cause bond yields to weaken further, the dollar to weaken more and commodity prices to strengthen. When positive real interest rates, which favor bond investors, turn negative, it will especially affect gold and silver prices to the upside.

Spot gold set a record $2,531.60 an ounce last week on Powell’s dovish comments. The buying trend continued into Monday, with the yellow metal hitting $2,514.73, and $2,525.00 as of 17:00 PST, Tuesday.

Gold’s rally, which started in mid-February, is underpinned mostly by increased geopolitical risks, central bank buying and slowing ETF sales.

Silver has gained mostly due to buying in India, China and so-called “paper silver”. Investors in July showed a renewed interest in silver ETFs, which had $300 million in inflows following two months of outflows totaling $1 billion, according to BlackRock’s latest Global ETP Flows report, via ETF.com.

Last week the metal followed gold higher, breaking through $30/oz. So far this year it is up 28% compared to gold’s 23%.

Year to date spot silver. Source: Kitco

The general consensus is that precious metals will continue to thrive over a longer horizon. AOTH’s research into the silver market indicates the metal is due for an upward price correction.

 Undervalued silver

Silver and gold largely move together, as both offer similar macro- and currency-hedging properties. While gold has hit record highs this year, silver remains undervalued, says John Ciampaglia, CEO of Sprott Asset Management.

Ciampaglia said with gold now above $2,500, silver prices should trend higher. Silver usually rallies after gold.

“It’s mind-boggling to us that silver is still below $30. It is obviously way off its 2010 highs, and we would love to see it get back to the $50 level,” said Ciampaglia. “We think it has the ability to do that over time.”

Gold-silver ratio

One way to gauge the relative value of gold versus silver is to calculate the gold-silver ratio. Simply divide the spot gold price by the spot silver price.

Source: Goldprice.org

According to Sprott Money, a breakout is coming because silver cannot continue to be so undervalued compared to gold. Using a median gold-silver ratio of 80:1 (80 ounces of silver to buy one ounce of gold), a gold price of $2,300 implies a silver price of $28.75. If gold reaches $2,500, as it has, maintaining that same ration means $31.25 silver.

But the thing is, when silver breaks out later this year or next, it will receive the same rush of attention and speculator cash that gold is currently enjoying. As such, the price target will not simply be $29 or $31. Instead, the initial goal will be $35 or higher. That’s a greater than 50% move from here and one from which you could greatly profit if you get correctly positioned before it begins.According to Investopedia, during the 20th century the average gold-silver ratio was 47:1. In the 21st century, the ratio has ranged mainly between 50:1 and 70:1, breaking above that point in 2018 with a peak of 104.98:1 in 2020. The lowest level for the ratio was 35:1 in 2011.

Another way of saying this, is it currently takes 85 ounces of silver to buy one ounce of gold, compared to the 20-year average of 68 oz.

Remember, when precious metals rallied in 2020, on the back of lockdowns, interest rates slashed to zero, QE, and general market fear, silver’s gain was double that of gold. The price ran up 43% from January to December, 2020, compared to gold’s mere 20.8% rise. Earlier in the year, as gold punched above $2,000 an ounce, a 39% gain, silver rallied to nearly $30 an ounce, a 147% increase.

Meanwhile, the gold-silver ratio fell from over 100:1 to just over 64:1. It could easily happen again, especially with the Fed poised to drop rates.

Technical analysis

We can also turn to the technical analysts to determine where silver is at and where it might be heading.

Hubert Moolan notes that over the last 125 years, the silver chart has formed two remarkably similar patterns. The 49-year pattern from 1919 to 1968 is almost the same as the one that started circa 1980.

Although the patterns are similar in basic form (they are both cups) and time, there is a big difference when it comes to the magnitude of price movement. For example, the price movement from the bottom (1932) of the first pattern to the top (1951) after about 11 years (from the secondary bottom) was 3.18 fold, whereas the movement from the bottom (1992) of the second pattern to the top (2011) after about 10 years (from the secondary bottom) was 13.09 fold.

This proves there was already significant outperformance (about 4.12 (13.09/3.18) times) during the formation of the current pattern. If this outperformance continues (which it likely will), then we can expect massive silver rallies for the rest of this decade.

In May, commodities analysts at TD Securities reiterated their bullish outlook for silver as demand continues to outstrip supply (more on that below).

“The last time silver prices broke through $30/oz, it traded to $50/oz in less than ten weeks,” Daniel Ghali, senior commodity strategist at TD wrote.

The Canadian bank said that growing demand could wipe out silver’s above-ground stocks within one to two years.

Silver demand

Silver, like gold, is a precious metal that offers investors protection during times of economic and political uncertainty. 

However, much of silver’s value is derived from its industrial demand. It’s estimated around 60% of silver is utilized in industrial applications, like solar and electronics, leaving only 40% for investing.

The lustrous metal has a multitude of industrial applications. This includes solar power, the automotive industry, brazing and soldering, 5G, and printed and flexible electronics.

Schiff Gold reported in May that silver demand in three sectors is expected to double in the next decade: industrial applications, jewelry production and silverware fabrication.

A report by Oxford Economics commissioned by the Silver Institute found that demand for these sectors is forecast to increase by 42% between 2023 and 2033.

As the metal with the highest electrical and thermal conductivity, silver is ideally suited to solar panels. A Saxo Bank report stated that “potential substitute metals cannot match silver in terms of energy output per solar panel.”

About 100 million ounces of silver are consumed per year for this purpose alone.

In May, a report by the International Energy Agency said global investment in solar PV manufacturing more than doubled last year to around $80 billion. This accounts for roughly 40% of global investment in clean-energy technology manufacturing.

Much of the growth is coming from, no surprise, China. The IEA says China more than doubled its investment in solar PV manufacturing between 2022 and 2023.

This is only going to continue.

According to Sprott, demand for silver from the makers of solar panels, particularly those in China, is forecast to increase by almost 170% by 2030, to about 273 million ounces — one fifth of total silver demand.

Last year the country commissioned as much solar as the entire world did in 2022. The IEA expects China to maintain an 85-90% market share of global solar supply chains and to double its manufacturing capacity again by the end of this year.

Miners are hoping to capitalize on the increasing demand for silver. Coeur Mining recently completed an expansion of its Rochester mine in Nevada, which is set to become the largest source of US-mined silver.

Hochschild Mining is also looking to expand its silver operations, by securing permits for a silver project in Peru slated to start in 2027.

Increasing investor interest in silver is hiking the share prices of some of the major silver miners. Pan American Silver is up 27.5% year to date, Coeur Mining has nearly doubled from $3.20 to $6.09, and Hecla Mining has risen from $4.69 to $5.99, a gain of 27%.

The Global X Silver Miners ETF (SIL) so far this year is up 15.1%.

Source: Yahoo Finance

Top silver companies in 2023. Source: Visual Capitalist

The transition to an electrified economy doesn’t happen without copper and silver, which is why in my opinion they are among the most highly investable commodities now, and for the foreseeable future. The danger, for end users, and opportunity, for resource investors, of coming shortages for both metals, only strengthens my thesis.  

In a recent commentary, the Silver Institute said industrial demand rose 11% last year to a new record of 654.4Moz, smashing the old record set in 2022.

In fact demand exceeded supply for the third year in a row.

Higher-than-expected photovoltaic (PV) capacity additions and faster adoption of new-generation solar cells raised electrical & electronics demand by a substantial 20%, to 445.1Moz, the institute said:

This gain reflects silver’s essential and growing use in PV, which recorded a new high of 193.5 Moz last year, increasing by a massive 64 percent over 2022’s figure of 118.1 Moz. Underpinning these overall gains was the limited scale of thrifting and substitution, as silver remains irreplaceable in many applications.

Chinese silver industrial demand rose by a remarkable 44% to 261.2Moz, primarily due to growth for green applications, chiefly PV. Last year, China’s rapid expansion of PV production accounted for over 90% of global panel shipments. Industrial demand in the United States stood at 128.1Moz, essentially flat over 2022, while Japan’s industrial offtake was also basically unchanged at 98Moz.

FX Street quotes a research paper by the University of New South Wales that found “solar manufacturers will likely require over 20% of the current annual silver supply by 2027. By 2050, solar panel production will use approximately 85–98% of the current global silver reserves.”

Who’s buying all the silver? India, China and silver-backed ETFs.

India in February purchased a whack of silver bullion, with silver imports surging 260%. The country bought 2,295 tonnes compared to just 637t in January — a new monthly record.

Putting that into perspective, it’s about 70 million ounces, more silver than the US Mint produced in American Silver Eagle coins over the past three years combined.

ABC News quoted a Canaccord senior mining analyst saying that silver is a more obtainable precious metal for “mum and dad” investors than more expensive gold, especially during uncertain times.

“The Chinese consumer loves silver as well [and] that’s been another impact,” said Tim Hoff.

The role of silver in Chinese history — Richard Mills

Kitco reported on April 8 that silver appears to be benefiting from both investment and industrial demand. Many investors are choosing to ride silver in an ETF investment vehicle. Kitco quoted precious metals analysts at Heraeus saying,

“Silver is a higher beta commodity than gold, so if retail investors show more interest as ETF holdings rise then it could outperform gold,” they noted. “Additionally, and in contrast to the gold market, silver investors re-entered the market for ETFs, with 10.7 moz of inflows in the last fortnight, taking total silver ETF holdings 3% higher year-to-date at 724 moz.”

The analysts said that industrial demand for silver is also expected to rise this year, based on “recent strong manufacturing data from the US and China” in addition to burgeoning Chinese solar installations.

If the demand for silver in solar power doesn’t blow the doors off the silver price in the near future, it may be a change in battery technology that does it.

Kitco reported recently that Samsung has developed a new solid-state battery that includes silver as a key component.

The site quotes retired investment professional Kevin Bambrough saying:

“The key drivers that will ramp up demand for EVs are range, charge time, battery life and safety,” Bambrough said. “Samsung’s new solid-state battery technology, incorporating a silver-carbon (Ag-C) composite layer for the anode, exemplifies this advancement. Silver’s exceptional electrical conductivity and stability are leveraged to enhance battery performance and durability, achieving amazing benchmarks like a 600-mile range and a 20-year lifespan and 9-minute charge.”

Bambrough provided estimates showing there could be up to 5 grams of silver per cell in these batteries, meaning “a typical EV battery pack containing around 200 cells for a 100 kWh capacity could require about 1 kg of silver per vehicle.”

If his numbers are right, it could mean a major new demand driver for silver going forward. Even if 20% of electric vehicles were to adopt Samsung’s SS batteries, the annual demand for silver would be around 16,000 tonnes, against total current production of 25,000 tonnes.

Kitco cites a report that says Samsung is already working with big automakers to incorporate its SS battery technology into EV development, including an agreement with Toyota to begin mass production of SS batteries in 2027. Lexus vehicles are also scheduled to be among the first to adopt them.

(The challenge is the cost. It’s around 3-4 times more expensive to manufacture SS batteries compared to lithium-ion and lithium-iron-phosphate batteries — not exactly a route to making EV sticker prices lower for cash-strapped and skeptical car buyers — Rick)

Silver supply

On the supply side, global silver mine production fell by 1% to 830.5Moz in 2023. Output was constrained by a four-month suspension of operations at Newmont’s Penasquito mine in Mexico due to a strike; lower ore grades; and mine closures in Argentina, Australia and Russia.

However, the negative supply news is countered by more silver miners listing on the Australian stock exchange, and some mothballed silver assets that are being re-envisioned as new mine startups.

For example, ABC News reports Horizon Minerals has an idle deposit near Kalgoorlie, 600 km east of Perth. “[W]e’re certainly reviewing what we’re going to do with it… and we reckon the potential is good,” said non-executive chairman Ashok Parekh.

Andean Silver recently bought a mine in Chile and is working to bring the project out of care and maintenance this year.

The article goes on to say that Australia has the largest share of the world’s economic silver resources, mostly in Queensland, the Northern Territory and South Australia. Silver is part of the commodity mix for several mines across the country.

China’s silver squeeze

The Jerusalem Post recently reported on an altogether unsurprising trend: that China is hoarding silver and deliberately driving up the price to drain the West’s resources.

The Shanghai Metals Exchange has seen a major surge in silver trading volume, with prices about 10% higher than those on Western exchanges.

Why would China want to drive up silver? Because silver is an input in many manufacturing processes, from electronics to solar panels. Companies will naturally pass on the higher cost of raw materials to consumers, which could lead to “a further slowdown of economic growth as China out produces the West in electronics and solar panels.”

Bloomberg reports that China’s silver imports reached a three-year high of 390 tons in December and 340 tons in April, compared to the monthly five-year average of 310 tons. In June and July, net silver imports surpassed 400 tons.

China is also hoarding solar panels, likely preparing to oversaturate the US market.

“Reports have shown China has produced so many solar panels that some Chinese citizens have put them to use as garden fences. About 80% of all panels made in the world originate from China,” states the Jerusalem Post.

Meanwhile, as mentioned, India is buying silver importing significant quantities from the West in recent years. The country recently cut it import duty on silver, further increasing demand for it.

According to the Jerusalem Post, Analysts warn that the growing demand for silver, coupled with limited supply, could lead to a “silver squeeze” similar to the silver squeeze of 1980. If investors begin to panic and rush to buy silver, the price could skyrocket, causing significant disruptions to the global economy.

Silver deficit

The Silver Institute reported a 184.3 million-ounce deficit in 2023 on the back of robust industrial demand.

The Silver Institute expects demand to grow by 2% this year, led by an anticipated 20% gain in the PV market. Industrial fabrication should post another all-time high, rising by 9%. Demand for jewelry and silverware fabrication are predicted to rise by 4% and 7%, respectively.

Total silver supply should decrease by 1%, meaning 2024 should see another deficit, amounting to 215.3Moz, the second-largest in more than 20 years.

In fact it’s the fourth year in a row that the silver market is in a structural supply deficit.

The numbers can be misleading.

The deficit actually fell 30% last year but at 184.3 million ounces it’s still massive. Global supply has been broadly steady at around 1 billion ounces but last year industrial silver demand grew 11%, reaching a new record of 654.4 million ounces. Usage was mostly in the green economy sector.

Total silver demand was 1.195 million ounces compared to 1,010.7Moz of total supply, which included mine production of 830.5Moz (-1%) and recycling of 178.6Moz.

A few more interesting facts from the report and observations on the silver market, courtesy of Investing Haven:

Only 123 million oz was left for silver investors after accounting for non-investment demand. The reality is that the pool available for investors is a fraction of the total silver produced.

The industrial fabrication of silver is expected to continue growing, driven by the PV market and other industrial segments, contributing to a forecasted 2% increase in total silver demand for the upcoming year.

The forecasted global silver demand for 2024 is an impressive 1.2 billion ounces, potentially the second-highest level ever recorded. This growth is primarily driven by strong industrial demand.

The COMEX silver price setting persists. Many tend to call this the “silver price manipulation by commercials.” Amid such short to medium term-oriented price influences, there is a deepening physical shortage unfolding. The clock is ticking, and the silver market is at a crucial juncture. The Silver Institute’s bullish data adds weight to the argument that higher silver prices are not a matter of “if” but “when”.

The dynamics of price are completely distorted. It is clearly not supply/demand that is determining price, but something else. This “something else” is futures trading, because it is futures market positioning that is clearly determining price more than supply/demand dynamics. This is what many tend to call “silver price manipulation”, i.e. the dynamics of positioning between commercials and managed money traders. Sooner or later, the dynamics in the physical market, driven by a supply shortage that is getting out of hand, will ensure that the price of silver will reflect the supply shortage.

Conclusion

Silver is undervalued as reflected by the current gold-silver ratio which sits at 86:1. The 20-year average is 68:1. Even though silver has outperformed gold year to date, by 28% to 23%, it still has a lot more room to run.

A May note from Citigroup, via Bloomberg, says if the Federal Reserve proceeds with interest-rate cuts and economic growth stays strong in the second half, the ratio could move to around 70, implying a strong move up.

At Singapore-based dealer Silver Bullion Pte, more clients are buying physical silver and waiting to see what the ratio does.

Amongst the trading and the strategizing, we can’t forget simple supply and demand. Silver is in the fourth year of a shortage, with mined supply seemingly unable to keep up with demand, which is strongly influenced by the solar and electronics markets.

We’ve warned of a silver supply crunch coming, partially caused by China, which is hoarding the metal and driving up the price, in an effort to hurt Western manufacturers. As the price of gold tracks higher Indians are increasingly buying massive amounts of silver.

Bloomberg reported over the next two years, the LBMA stockpiles may be depleted given the current pace of demand, according to TD Securities.

“We are slowly going to see supplies tightening because industrial demand is set to go higher,” said Gregor Gregersen, founder of Silver Bullion Pte. “If investors are also starting to buy, then I think in two or three months’ time, my biggest problem might end up being ‘Where do I find supply?’ rather than ‘How do I sell the silver?’” Continue reading →

Excerpt from this week’s: Technical Scoop: Dollar Higher, Gold Small, Recession Indicator

Source: www.stockcharts.com

Gold continues to shine, even though it still seems no one is paying any attention. It has been described as the canary in the coal mine, warning us that something negative is afoot. Too bad silver is still struggling to get the message. But we did see some positive moves by silver over the past couple of weeks. This past week gold fell 0.7%, thanks to a strong U.S. dollar as the US$ Index, sparked by the better than expected economic numbers, rose 1.0%. Silver fell 2.3%. But gold remains up 22.0% on the year and silver up 21.0%. Platinum continues to struggle, falling 3.5%, but palladium continues to recover, up 2.2%, while copper was up 0.2%. The gold stocks suffered as a result, with the Gold Bugs Index (HUI) falling 2.0% and the TSX Gold Index (TGD) off 1.5%. Both remain up on the year at 28.7% and 27.7% respectively.

Gold is still rising, but below $2,500 a temporary top may be in. We still seem to be headed inexorably for $2,600 next. There is good support down to $2,400. Silver has support here at $29, but below that we could fall to $28. The TGD has good support down to 347 and 340. We may not have made a seasonal bottom in September yet, so some more work may need to be done on the current corrective state. Once we find a bottom, we could rise into November before correcting again into December. After that, gold enjoys its best seasonal pattern of the year with good rises into March.

A quick note on oil that continues to suffer some demand concerns. And with the Middle East relatively quiet, especially on the Iran front, that keeps a lid on oil rising. WTI oil fell 1.7% this past week, Brent was down 1.6%, natural gas (NG) fell 2.3%, but EU NG at the Dutch Hub was up 7.6%. Energy stocks were mixed, with the ARCA Oil & Gas Index (XOI) up 0.7% but the TSX Energy Index (TEN) was down 1.4%. We’re still a couple of months away from the strong seasonals for oil.

Gold is going higher. But we need silver to assume leadership, and it still needs to take out $31.50 to tell us new highs are ahead. In the interim, we still might face some further corrective action. Into 2025 things might get quite golden.

Chart of the Week

Source: www.stockcharts.com

Most followed is the Dow Jones Industrials/Gold ratio, or simply the DJI/Gold ratio. It is useful in determining whether one should be long stocks or long gold. The ratio showed you should be long gold 1929–1932, 1966–1980, and 1999–2011. And long stocks 1932–1966, 1980–1999, and 2011–2018. It is indeterminate since then as the pattern has moved largely sideways, with some bias towards gold.

However, this looks at the S&P 500/Gold ratio as well as the S&P 500 Total Return/Gold ratio. The patterns and when to be long or short (out of) gold are the same, but the message seems to be that over time the S&P 500 total return has outperformed by more than double. When, as we show below, Chen Zhao’s chart rebased to 1969, it shows it is more than four times better. It shows the power of dividends. What it seems to suggest is that while there is a time to hold gold or even increase one’s exposure to it over the long term, it is better to collect dividends. Both patterns are now indicating that the ratio is topping, suggesting one should increase their exposure to gold.

Source: www.alpinemacro.com, courtesy of Chen Zhao

Read the FULL report here: Technical Scoop: Dollar Higher, Gold Small, Recession Indicator

Copyright David Chapman 2024

Disclaimer

David Chapman is not a registered advisory service and is not an exempt market dealer (EMD) nor a licensed financial advisor. He does not and cannot give individualised market advice. David Chapman has worked in the financial industry for over 40 years including large financial corporations, banks, and investment dealers. The information in this newsletter is intended only for informational and educational purposes. It should not be construed as an offer, a solicitation of an offer or sale of any security. Every effort is made to provide accurate and complete information. However, we cannot guarantee that there will be no errors. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the contents of this commentary and expressly disclaim liability for errors and omissions in the contents of this commentary. David Chapman will always use his best efforts to ensure the accuracy and timeliness of all information. The reader assumes all risk when trading in securities and David Chapman advises consulting a licensed professional financial advisor or portfolio manager such as Enriched Investing Incorporated before proceeding with any trade or idea presented in this newsletter. David Chapman may own shares in companies mentioned in this newsletter. Before making an investment, prospective investors should review each security’s offering documents which summarize the objectives, fees, expenses and associated risks. David Chapman shares his ideas and opinions for informational and educational purposes only and expects the reader to perform due diligence before considering a position in any security. That includes consulting with your own licensed professional financial advisor such as Enriched Investing Incorporated. Performance is not guaranteed, values change frequently, and past performance may not be repeated. Continue reading →

Anthony BradshawAs gold trades at $2,500, a record high, its path ahead faces challenges related to the upcoming FOMC meeting. Still, the balance of risks appears to support precious metal prices. Let’s examine the key factors that could influence its trajectory moving forward. Inflation remains above the Federal Reserve’s target of 2% but continues to decline slowly. For example, the latest PCE report came in at 2.5%; a year ago, this rate was 3.3%. The core PCE was 2.6%, 1.6 percentage points below its rate from July 2023. Since gold is perceived as a hedge against inflation, shouldn’t lower inflation put downward pressure on its price? Recent data suggest that inflation hasn’t been responsible for the rising demand for gold, as shown in the following chart. Figure 1: Gold and Inflation Author’s Creation (FRED) During the rise of inflation in 2021-2022, gold only slightly increased, and as inflation declined in 2023-2024, gold prices kept climbing to reach new highs. While inflation may not have been the main factor in rising gold prices, the decline in inflation and the prospects of lower long-term rates did. The strong correlation between long-term rates and gold has been one of the critical factors affecting the metal’s price trajectory. Indeed, the recent rally in gold is partly due to the recent decline in long-term interest rates as inflationary pressures eased. For example, the 10-year treasury bond yield decreased by 74 bp since May, while inflation (CPI) by 43 bp. In addition, the difference between the 10-year yields of treasury bonds and TIPS has been stable throughout most of the year – another indication that most of the decline in yields is due to the decline in inflation. Besides the lower inflation, the FOMC could reduce long-term interest rates by cutting short-term rates in the upcoming meeting. The markets expect the FOMC to cut rates every meeting throughout the remainder of the year, as estimated in the bond market (see the table below). In addition, the market gives a 32% chance of 50 bp in September. Table 1: Target rate probabilities for 2024-2025 Author’s Creation (CME) As the FOMC cuts and long-term rates fall, they could weaken the US dollar, providing an additional tailwind to precious metal prices. Some of these upcoming rate cuts are probably priced in, so it will require much more substantial rate cuts than the current market outlook to push gold to new highs. Alas, the market seems a bit too optimistic that the FOMC would cut rates by one percentage point by December, which, for now, seems unlikely; the FOMC has been known to have a very conservative approach and tends to underdeliver on stimulative policies – unless there is an apparent crisis like the COVID shock of early 2020 or the plunge in stock prices in late 2018. Hence, it is more likely they may decide to cut rates by only 25 bp in September and be more cautious of promising a rate cut every meeting. Nonetheless, the upcoming non-farm payroll report, released this Friday, might persuade them to cut rates by 50 bp if the number of jobs added is well below expectations and unemployment ticks up again. It could provide additional clues as to whether the US economy is heading toward a recession – another potential contributing factor to the demand for gold. While gold may not be the best hedge against inflation, it is more of a hedge against recessions. The previous jobs report raised alarm bells that the US could face a recession as the Sahm rule hit the 0.5 threshold, and the next one could reinforce this assessment. While even Sahm herself thinks this time is different and her rule should be taken with a grain of salt, it’s still enough to boost precious metal prices, as was the case during the Covid-induced recession of 2020, as seen in the chart below. Figure 2: Sahm rule recession indicator and gold price Author’s Creation (FRED and Author’s Calculations) The bottom line is that gold could face some headwinds, such as the FOMC underdelivering on rate cuts in the upcoming meetings. However, the current trajectory of falling short-term rates along with low inflation is likely to keep lowering long-term rates; in addition, the weaker US dollar and the prospects of a recession may be enough to support gold prices. Continue reading →

(Reuters) — A golden era for cash may be winding down as the Federal Reserve gets ready to cut interest rates. Many fans of the investment class are staying put anyway.Assets in US money markets hit a record $6.24 trillion this month, data from the Investment Company Institute showed on Aug. 21, even as markets became increasingly confident that the Fed was gearing up to lower rates at its Sept. 17-18 meeting.Federal Reserve Chair Jerome Powell. (Andrew Harnik/Getty Images) (Andrew Harnik via Getty Images)Those reductions are expected to eventually pull yields in money markets down from above 5%, a rate unimaginable a few years ago. So far, however, there is little evidence that individual investors are abandoning cash to chase returns in stocks and bonds. Some $100 billion flowed into money markets in August, according to data analysis firm EPFR.“We don’t feel any need to move our money,” said Vance Arnold, a 71-year-old retired teacher and baseball coach from Fayetteville, Arkansas, who has about 80% of his seven-figure portfolio in money markets and other cash equivalents.Money-market yields went from near-zero to “4.5%, 4.7%, and now we’re over 5.2%. I can live with 4.5% again,” he said.The durability of money markets is a recent example of how cash has reemerged as an asset class that can compete with stocks and bonds, one of the most striking shifts in the post-COVID investment landscape. Assets in money markets have grown by $313 billion this year, according to Crane Data, which tracks money market funds, despite heady returns in stocks and expectations that the Fed will cut rates.Cash is seen as one of the safest and most liquid asset classes, boosting its appeal to retirees and investors looking to get paid while staying on the sidelines. Though yields are expected to fall in coming months, projections show them stopping well short of the near-zero levels of a few years ago, when hedge fund legend Ray Dalio famously declared cash “trash”.Clients are also hanging onto cash because of worries about rich stock valuations following an 18% year-to-date rally that has taken the S&P 500 to record highs, as well as uncertainty ahead of the US presidential election, wealth advisors said.Missing out?But investors holding too much cash could miss out on the often superior returns of other asset classes. Cash has returned an average of 2% in the 12 months after the Fed starts cutting interest rates, while stocks have returned 11% and Treasury bonds gained 5%, according to a study by Hartford Funds of rate-cutting cycles since 1928.Anne Marie Stonich, chief wealth strategist at Coldstream Wealth Management in Seattle, has been urging clients to move out of cash and into assets such as government bonds, where they can lock in yields if they hold the securities to term. Her efforts have met resistance from cash-loving investors, she said.”It’s easy to have been complacent, but now it’s time to wake up and pay attention to moving your cash onward,” Stonich said.Investors’ dedication to cash could be tested if a weakening economy prompts the Fed to cut rates faster or deeper than expected. Such a scenario could conversely raise the appeal of haven assets if growth worries prompt a stock selloff.Traders will be watching US employment data on Sept. 6 to see if the labor-market weakness that roiled markets in late July and early August has dissipated.Futures tied to the Fed’s main policy rate show markets pricing about two percentage points in rate cuts over the next year.Wary investors The latest inflows into money-market funds included money from institutional investors seeking to lock in yields ahead of Fed cuts, EPFR’s data showed.Yet cash is also popular with individual investors, who have accounted for more than $4 trillion of the funds currently in money markets, according to data from the Federal Reserve Bank of St. Louis.A tiny part of that cash pile belongs to Judith Astroff, a 75-year-old systems analyst in New York, who estimates 15% of her $500,000 retirement account is sitting in money markets.Astroff is no stranger to risk. Much of her account came from a windfall trade on shares of chipmaker Nvidia, one of the big winners from the market’s excitement over artificial intelligence.However, she prefers cash to the volatility of stocks or locking up money in longer-term US government bonds.“I really should take some of that money and put it somewhere that I would have a better chance of seeing some growth,” she said. But “after a phenomenal run of luck with Nvidia, I’m kind of terrified about buying anything else.”Brian Nick, head of portfolio strategy at NewEdge Wealth in Stamford, Connecticut, hopes to persuade clients to diversify if yields fall as expected in coming months.”You have to convince them there’s a reason to move away from money markets but also a reason why some other asset offers a better opportunity,” he said. “That will be the approach that eventually wins out.”(Reporting by Suzanne McGee; Additional reporting by Saqib Iqbal Ahmed; Editing by Ira Iosebashvili and Rod Nickel) Continue reading →

(Bloomberg) — Global stocks rose, with European markets at record highs, lifted by the prospect of lower interest rates amid signs of moderating inflation across the developed world.Most Read from BloombergThe Stoxx Europe 600 index rose 0.4% after data showed euro-area inflation easing to a three-year low in August. Coming after similar slowdowns in France, Germany and Spain, the print bolsters the case for the European Central Bank to cut rates again next month.US equity futures also advanced, with contracts on the Nasdaq 100 adding 0.6% and the S&P 500 up 0.4%. Nvidia Corp. edged higher in premarket trading, following the previous day’s 6% drop, while other tech names, including Marvell Technology Inc. and Dell Technologies Inc. were boosted by forecast-beating results.Bets for a Fed rate cut continue to dominate, putting stock markets on track for a second month of gains. Most recent data showing the central bank has managed to tame inflation without tipping the economy into recession. Data on core PCE, the Federal Reserve’s preferred inflation gauge, is due later Friday.“Inflation is looking better and economic growth remains decent and that’s the environment we are in,” said Florian Ielpo, head of macro research at Lombard Odier Asset Management in Geneva.Markets now expect the Fed to cut rates next month by as much as 50 basis point and by another half-point by year-end. Ielpo expects the monthly payrolls report due next week to be even more significant than today’s PCE reading.“Inflation is a done deal so markets are more likely to pay attention to what’s happening to employment and growth,” he added.Expectations for monetary easing have put Treasuries on course for their longest monthly winning streak in three years. But the wagers have weighed on the dollar, which edged lower against a basket of currencies and was set for its worst monthly performance this year.In commodity markets, oil extended gains on positive US economic data and worsening supply disruptions in Libya. Iron ore edged higher after rallying by about 10% in 10 days to breach $100 a ton.Key events this week:Eurozone unemployment, FridayUS personal income, spending, PCE; consumer sentiment, FridaySome of the main moves in markets:StocksThe Stoxx Europe 600 rose 0.3% as of 10:10 a.m. London timeS&P 500 futures rose 0.4%Nasdaq 100 futures rose 0.6%Futures on the Dow Jones Industrial Average rose 0.1%The MSCI Asia Pacific Index rose 0.7%The MSCI Emerging Markets Index rose 0.5%CurrenciesThe Bloomberg Dollar Spot Index was little changedThe euro was little changed at $1.1082The Japanese yen was little changed at 145.03 per dollarThe offshore yuan rose 0.2% to 7.0823 per dollarThe British pound rose 0.1% to $1.3184CryptocurrenciesBitcoin fell 0.1% to $59,459.52Ether fell 0.7% to $2,522.32BondsThe yield on 10-year Treasuries was little changed at 3.85%Germany’s 10-year yield declined two basis points to 2.26%Britain’s 10-year yield declined three basis points to 3.98%CommoditiesBrent crude rose 0.3% to $80.17 a barrelSpot gold rose 0.1% to $2,524.38 an ounceThis story was produced with the assistance of Bloomberg Automation.–With assistance from Winnie Zhu.Most Read from Bloomberg Businessweek©2024 Bloomberg L.P. Continue reading →

(Reuters) – U.S. stock index futures traded higher on Friday as investors focused on a crucial inflation report that could influence expectations about the extent of the Federal Reserve’s interest-rate cuts this year.Global markets are nearing the end of a tumultuous month for riskier assets, after signs of a sudden moderation in the labor market sparked fears of a quicker-than-expected slowdown in the world’s largest economy in early August. The influence of the Japanese yen carry trade worsened the rout.Risk-taking has improved since then, with the Dow at a record high and on track for monthly gains as subsequent data, including Thursday’s upward revision to economic growth, soothed jumpy investors.Focus now shifts to July’s Personal Consumption Expenditure data, the Fed’s preferred inflation gauge, due at 8:30 a.m. E.T. – the last PCE report before the central bank’s highly anticipated September meeting.Economists polled by Reuters forecast a marginal rise to 2.6% on an annual basis, from the previous month’s 2.5%.Following Chair Jerome Powell’s support last week for imminent policy adjustment, optimism around an interest-rate cut in September remains strong. Odds of a 25-basis-point reduction are at 65.5%, while those for a 50-bps reduction are at 34.5%, according to the CME Group’s FedWatch Tool.At 05:47 a.m. ET, Dow E-minis were up 65 points, or 0.16%, S&P 500 E-minis were up 21.25 points, or 0.38%, Nasdaq 100 E-minis were up 126.5 points, or 0.65%.The tech-focused Nasdaq and the S&P 500 closed lower in the previous session after Nvidia failed to match investors’ lofty expectations despite upbeat results and a broadly in-line forecast. The AI-chip bellwether was up 1.7% in premarket trading after a 6.4% drop in the previous session.The benchmark S&P 500 is close to an all-time high, poised for a monthly gain of 1.2%, while the Nasdaq is down 0.47% in August.Rate-sensitive megacaps such as Alphabet and Microsoft added 0.6% and 0.8%, respectively, while Tesla rose more than 1.4%, supported by a dip in Treasury yields.Among others, Marvell Technology forecast third-quarter results above Street estimates, sending the chipmaker’s shares up 9.2%.Dell Technologies advanced 6% after lifting its annual revenue and profit forecasts, buoyed by demand for its AI-optimized servers.Lululemon Athletica gained 4.4% after posting a beat on second-quarter profit, while Ulta Beauty slid 6.2% after it trimmed its annual results forecasts due to slowing demand.Investors will also parse the University of Michigan’s final reading on consumer sentiment for the month of August later in the day.Trading volumes are expected to thin ahead of the extended weekend due to the Labor Day holiday.(Reporting by Johann M Cherian in Bengaluru; Editing by Pooja Desai) Continue reading →

In the early 20th century, a revolution in personal transportation was about to change the world.

The year was 1908, and Henry Ford had just unveiled his Model T, a car that would put America on wheels and spark an industrial transformation unlike any seen before. The heart of this revolution was the Model T’s engine – a simple yet robust 4-cylinder marvel that produced 20 horsepower.

This powerplant, designed for reliability and ease of manufacture, would soon find its way into applications far beyond the automobile.

As Model Ts began rolling off assembly lines by the thousands, enterprising individuals across the country saw potential in Ford’s creation.

Farmers, always eager for ways to increase productivity, were among the first to recognize the engine’s versatility.

They began removing engines from old Model Ts and repurposing them to power everything from water pumps to grain mills.

The adaptability of the Model T engine sparked a wave of innovation. Soon, it was powering boats, generators, and even early aircraft. In rural areas, where electricity was still a luxury, the Model T engine became a lifeline, providing power for essential tasks and bringing modern conveniences to remote communities.

This technological transfer wasn’t limited to small-scale applications. As the reliability and efficiency of the Model T engine became apparent, larger industries took notice. Mining companies began using modified versions to power equipment deep underground.

Construction firms found ways to incorporate the engine into various pieces of machinery, revolutionizing building techniques.

The Model T engine’s influence extended beyond American shores. In Europe, where the scars of World War I were still fresh, the engine found new life in reconstruction efforts. Its simplicity made it ideal for powering portable sawmills and other equipment needed to rebuild war-torn cities

The silver market appears poised for a significant supply crunch that has not yet been fully reflected in its price. This impending shortage, driven by the rapid growth of electric vehicles (EVs) and renewable energy technologies, could lead to a dramatic price increase in the coming years.

The EV Revolution and Silver Demand

Electric vehicles are at the forefront of the growing demand for silver. Regardless of the vehicle type, any mode of transportation utilizing an electric engine contributes to this surge in silver consumption. The electric engine (silver battery) alone is projected to require 25,000 metric tons of silver annually for EV production.

This number is based on the adoption of Silver solid-state battery (if it’s good enough for EVs it’s good enough for almost any engine in any car, truck, bus, barge, or plane)

To put this in perspective:

25,000 metric tons is equivalent to approximately 803,750,000 troy ounces of silver.
This is one year of mining effort
How do you think the solar, aerospace, military, AI, robotics, and jewelry manufacturers are going to respond to being shoved out of line?
This demand spans across various vehicle types, including cars, trucks, vans, buses, motorcycles, ships, barges, ferries, yachts, and even airplanes.

Silver’s Superiority in EV Technology

Silver’s unique properties make it the preferred material for many EV components, particularly in battery technology. Its excellent conductivity, corrosion resistance, and thermal management capabilities make it indispensable in the production of high-performance EV batteries.

Market Size Comparison: Silver vs. Nickel

To understand the potential impact on silver prices, it’s instructive to compare it with the nickel market:

The nickel market, with an annual production of 2.7 million tons, is expected to see price increases over the next five years due to EV demand.
Projecting forward, The silver market, at approximately 25,000 metric tons per year for silver batteries, is about 108 times smaller than the nickel market.

This vast difference in market size suggests that the impact of EV demand on silver prices could be significantly more pronounced than on nickel prices.

Factors Contributing to the Potential Price Surge

Limited Supply: Unlike some other metals, silver mining is often a byproduct of other metal extraction processes, making it challenging to quickly increase supply.
Diverse Industrial Applications: Beyond EVs, silver is crucial in solar panels, electronics, and other growing industries, further straining supply.
Investment Demand: As awareness of the supply shortage grows, investment demand for silver as a precious metal could increase, adding to price pressure.
Technological Advancements: New technologies, like solid-state batteries, may require even more silver per vehicle, potentially exacerbating the supply-demand imbalance.

Market Implications

The current silver price, hovering around $30 per ounce, may not fully reflect the looming supply shortage. As the Silver battery market continues to expand and other industrial uses grow, we could see a significant price adjustment in the silver market.

Investors, manufacturers, and policymakers should be prepared for potential supply chain disruptions and price volatility in the silver market. Companies reliant on silver for their products may need to secure long-term supply agreements or explore alternative technologies.

The silver market appears to be on the cusp of a major shift.

We may now experience “Silver Wars” between industry sectors. (Military, Aerospace, Solar, Electric engines) all competing for the #1 conductor of energy… SILVER

The combination of surging demand from the EV sector, limited supply flexibility, and silver’s critical role in various emerging technologies suggests that current prices may be undervaluing the metal’s future prospects. As the market begins to price in these factors, we will see a massive explosion in silver prices and a sustained increase in silver prices in the coming years. Continue reading →

“The time has come for policy to adjust.” Those were the words of Federal Reserve Chairman Jerome Powell on Friday at the annual Jackson Hole Economic Symposium.The Fed has been locked in an intense battle to tame inflation, which hit a 40-year high in 2022 when the Consumer Price Index (CPI) soared to 8%. That was far above the Fed’s annual target of 2%, and the central bank responded with the most rapid string of interest rate hikes in its history.But inflation has cooled significantly this year, and the Fed is now set to cut the benchmark federal funds rate for the first time since March 2020. While lower rates can be great for stocks over the long term, history suggests the initial response in the S&P 500 (SNPINDEX: ^GSPC) index might actually be negative.A September rate cut appears certainThe inflation surge during 2022 was a product of the pandemic. The U.S. government delivered trillions of dollars worth of stimulus during 2020 and 2021 to fight the negative impacts of the COVID-19 crisis on the economy. At the same time, the Fed slashed the federal funds rate to a historically low range of 0% to 0.25%, and used quantitative easing (QE) to inject trillions of dollars into the financial system.Those factors eventually combined with global supply chain disruptions and shortages to create an inflationary cocktail that forced the Fed to drastically raise interest rates. In the 17 months between March 2022 and July 2023, the central bank ratcheted the federal funds rate up from near zero to a range of 5.25% to 5.50%.Target Federal Funds Rate Upper Limit ChartThankfully, tighter monetary policy is doing its job. The CPI fell to 4.1% in 2023, and it came in at an annualized rate of 2.9% in July 2024, which was the latest reading. That’s closing in on the Fed’s 2% target, which is part of the reason why Chairman Powell believes it’s time to adjust the federal funds rate downward.According to the CME Group’s FedWatch tool, traders are pricing in a certain chance of a rate cut at the Fed’s next meeting on Sept. 17 and 18 — the only point of debate is whether it will be 25 basis points or 50 basis points. FedWatch predicts additional rate cuts in both November and December.The stock market doesn’t always like rate cutsThe stock market’s response to rate cuts has been quite negative in recent history, at least initially. Every rate cut cycle since the year 2000 has foreshadowed a drop in the S&P 500, as highlighted by the chart below, which overlays the index with the federal funds rate.Target Federal Funds Rate Upper Limit ChartHowever, the Fed cut rates in the early 2000s because the dot-com bubble burst, which triggered a recession. Then, it cut rates in 2008 because of the global financial crisis. Finally, it slashed rates in 2020 because of the pandemic.Therefore, it’s possible the S&P 500 fell on each of those occasions because of the major economic shocks the Fed was responding to, not because the Fed was cutting rates. Thankfully, there doesn’t appear to be an economic catastrophe looming now, so perhaps investors will respond to these rate cuts more positively.Plus, in each of those prior cases, the S&P 500 recovered to set new all-time highs. Lower rates are positive for businesses over the longer term because companies can borrow more money to fuel their growth, and their interest payments are smaller, which is a tailwind for their earnings.Also, lower benchmark rates reduce the yields of risk-free assets like cash and bonds, which pushes investors who want better returns into growth assets like stocks. So, investors definitely shouldn’t rush to sell their stocks when the Fed cuts rates in September.Will September’s rate cut be 25 basis points or 50 basis points?Although the U.S. economy is in relatively good health right now, its growth is clearly slowing. The unemployment rate, for example, was 3.7% at the start of 2024, but it has since ticked higher to 4.3%. Higher unemployment can trigger a slowdown in consumer spending, which would be a drag on the economy.The Fed is taking notice. On Friday, Powell commented that inflation posed a diminishing risk to the U.S. economy, whereas the unemployment situation now presents an increasing risk. In that context, the upcoming non-farm payrolls (jobs) report that is scheduled for release on Sept. 6 could determine whether the Fed cuts rates by 25 basis points or 50 basis points at its September meeting.If the U.S. economy creates fewer jobs than expected — or if the unemployment rate ticks even higher — the central bank might opt for a 50-basis point cut to prevent the situation from deteriorating further. In that scenario, it’s possible that the S&P 500 will slide due to fears among traders that the economy is weaker than it currently appears.In any case, long-term investors should stay the course because history suggests that any dip in the S&P 500 is likely a buying opportunity rather than an excuse to sell. Over time, consumers and corporate America alike will benefit from lower interest rates, which will be positive for stocks.Should you invest $1,000 in S&P 500 Index right now?Before you buy stock in S&P 500 Index, consider this:The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and S&P 500 Index wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $786,169!*Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.See the 10 stocks »*Stock Advisor returns as of August 26, 2024Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.The Fed Just Flagged Its First Interest Rate Cut Since March 2020. It Might be Bad News for Stocks. was originally published by The Motley Fool Continue reading →

The global economic landscape has undergone a seismic shift over the past few decades, with the outsourcing of jobs from the United States to India playing a pivotal role. This transformation has had far-reaching consequences for both nations, reshaping their economies and societies in profound ways.

In the United States, the outsourcing trend has led to a significant loss of well-paying jobs, particularly in the Rust Belt and in sectors such as customer support and IT services. This exodus of employment opportunities has left many American workers grappling with economic uncertainty and diminished prospects.

Conversely, India has experienced a remarkable surge in its middle class, fueled by the influx of outsourced jobs. This rapid economic ascent has lifted millions out of poverty, dramatically altering the nation’s socio-economic landscape.

As Indian households gain increased purchasing power, they are embracing modern conveniences that were once out of reach. The demand for appliances like air conditioners, washing machines, and refrigerators has skyrocketed, along with automobile ownership.

From 2022 to 2023, only 5% of households in India had AC. India is a scorching hot country. As people are lifted out of misery (poverty) into the middle class, it’s understandable that India will require ooodles more from the power grid (silver being the #1 conductor of electricity).

This newfound prosperity, however, comes with its own set of challenges.

India’s energy infrastructure is straining under the weight of increased consumption, as millions of newly affluent citizens plug in power-hungry devices.

The surge in demand for modern amenities has also created an unexpected pressure point: the need for silver, a crucial component in many electronic devices and appliances due to its superior conductivity.

Expect Silver Prices to Rise as Demand Surges

India’s Silver Imports Set to Double: India is expected to witness a significant surge in silver imports this year. This growth is primarily fueled by the rising demand from solar panel and electronics manufacturers.

Driving Force: The significant increase in silver imports can be largely attributed to the burgeoning investment in solar energy. Silver, a crucial component in solar panel production, is driving this surge in imports.

Market Impact: The increase in silver imports reflects a broader trend of escalating demand for materials essential for renewable energy technologies.

Economic Implications: The surge in silver imports could potentially influence local silver prices and significantly impact India’s balance of trade. This is particularly significant as India heavily relies on imported silver for its manufacturing needs.

Future Projections: Analysts suggest that as solar energy initiatives expand, the demand for silver and other critical materials will continue to rise, potentially leading to further increases in imports in the coming years. Continue reading →

Nuthawut SomsukLast week saw an abundance of dovishness from the US Federal Reserve (Fed), which only increased expectations for a September interest rate cut. First, we got the minutes from July’s Federal Open Market Committee (FOMC) meeting, which were surprisingly dovish. And then, during his long-awaited speech at Jackson Hole, Fed Chair Jay Powell indicated that a policy shift is imminent. Given these developments, I can’t help but think about a certain song about doves, but in my version, they’re yelling instead of crying (if you’d like to get the same song stuck in your head also, I’ll share my lyrics at the end.) The FOMC says a September rate cut is likely appropriate The minutes from the July FOMC meeting were surprisingly dovish;1 participants recognized that the US has made more compelling disinflationary progress. More importantly, there was a focus on downside risks, especially a weakening labor market and fears of a more serious deterioration – and July’s meeting, of course, came well before the August release of the preliminary annual review of jobs, which showed a serious downward revision to jobs created. While “several” participants noted that easing monetary policy too soon could risk a resurgence in inflation, “many” participants noted that easing policy too little or too late “could risk unduly weakening economic activity or employment.” It seems clear the Fed no longer sees risks as balanced: “A majority of participants remarked that the risks to the employment goal had increased, and many participants noted that the risks to the inflation goal had decreased… Some participants noted the risk that a further gradual easing in labor market conditions could transition to a more serious deterioration.” It’s also important to note that the staff’s economic forecast for the July FOMC meeting was “marked down largely in response to weaker-than-expected labor market indicators.” Most importantly, we learned that a “vast majority” of participants said “it would likely be appropriate to ease policy at the next meeting” if the economy evolved as the Committee expected. Powell says now’s the time for Fed policy to adjust Then came Powell’s long-awaited speech from the Kansas City Fed’s Symposium at Jackson Hole. Powell was more dovish than I expected, even after reading the July FOMC meeting minutes. In my view, Powell said all the right things and signaled a policy shift is imminent: “The time has come for policy to adjust. The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks.” He also shared the powerful statement, “We do not seek or welcome further cooling in labor market conditions.” Powell didn’t even use the term “gradual” to describe his expectations around rate cuts. Not surprisingly, markets reacted positively, with small caps and cyclicals outperforming.2 The last time the Fed hiked rates was July 26, 2023. If a September rate cut comes to fruition, that means there will be about 14 months between the last rate hike and the first rate cut, which is significantly longer than the average time frame between the end of tightening and the start of easing (the average time from last rate hike to first rate cut in the last four policy cycles was 9 months).3 Markets are closely watching the economic data Stocks have been waiting a long time for this moment. We have had several periods in the last year in which small caps and cyclicals briefly outperformed, but they were never sustainable. However, this time I believe such outperformance could be sustainable – as long as new economic data doesn’t reignite concerns about recession. A soft landing is still my base case scenario for the US economy, but recession risks continue to rise every day that monetary policy is this restrictive. From now until the September FOMC meeting, we should be watching economic data closely for signs of further weakening, since the risk of recession is the biggest risk facing the economy right now. In past months, bad news about the economy was seen as good news for stocks, as it upped the chances for a Fed rate cut. But now, it’s likely that bad news would simply be seen as bad news. Worse-than-expected economic data could especially derail any small cap or cyclical rally. And that brings me back to singing about doves: “Dig if you will the picture Of a US soft landing bliss Target inflation is near Can you my darling Can you picture this? The threat of recession worries me Job losses at risk Makes me lose sleep Can we my darling Can we avoid this? How can we just leave the economy standing With monetary policy that’s so cold? (So cold) Maybe this Fed’s just too demanding Maybe they’re just like Paul Volcker, too bold In September they’ll start easing Rates are too high It’s time to shift policy They don’t want to hear what it sounds like When doves cry” Apologies to those who are wincing right now – there is a reason I never became a songwriter. Looking ahead This week, the focus will be on Nvidia (NVDA) earnings and the Personal Consumption Expenditures (PCE) print for the US. I would caution against placing too much emphasis on Nvidia earnings since we are seeing contributions to earnings growth coming from more companies in the S&P 500, which means Nvidia’s earnings are becoming less important. The PCE print will be most important, although I can’t imagine a print that would derail the Fed’s intent to cut in September. Dates to watch Date Event What it tells us August 26 US Durable Goods Orders Measures current industrial activity. Germany Ifo Business Climate Index Assesses the current German business climate and measures expectations for the next six months. August 27 Germany Gross Domestic Product Measures a region’s economic activity. GfK Germany Consumer Climate Index Measures the level of consumer confidence in economic activity. S&P/Case Shiller US Home Price Index Indicates the health of the housing market. Conference Board US Consumer Confidence Details consumer attitudes and expectations for inflation, stock prices, and interest rates. August 28 Japan Leading Index Tracks economic indicators to assess the future direction of the economy. Crude Oil Inventories Indicates the health of the energy sector. Australia and New Zealand Business Confidence Measures current business conditions. August 29 Eurozone Consumer Confidence Tracks sentiment among eurozone consumers. Eurozone Consumer Inflation Expectations Assesses eurozone consumers’ expectations for the path of inflation. Germany Consumer Price Index Tracks the path of inflation. US Gross Domestic Product Measures a region’s economic activity Japan Consumer Price Index Tracks the path of inflation. August 30 Germany Retail Sales Indicates the health of the retail sector. Germany Unemployment Indicates the health of the job market. Eurozone Consumer Price Index Tracks the path of inflation. US Personal Consumption Expenditures Measures price changes in consumer goods and services. Canada Gross Domestic Product Measures a region’s economic activity University of Michigan US Consumer Sentiment Assesses US consumer expectations for the economy and their personal spending. University of Michigan US Inflation Expectations Assesses US consumers’ expectations for the path of inflation. China Manufacturing Purchasing Managers’ Index Indicates the economic health of the manufacturing sector. China Services Purchasing Managers’ Index Indicates the economic health of the services sector. Click to enlarge Footnotes Source for all FOMC information and quotes: Federal Reserve as of Aug. 21, 2024 Source: Bloomberg, L.P., based on the performance of the Russell 2000 Index (3.2%) versus the S&P 500 Index (1.15%) on the day of Powell’s speech, Aug. 23, 2024. Past performance is not a guarantee of future results. An investment cannot be made directly in an index. Source: Board of Governors of the Federal Reserve System. Feb. 1994 – Feb. 1995 hike cycle: 5 months to first cut. June 1999 – May 2000 hike cycle: 8 months to first cut. June 2004 – June 2006 hike cycle: 15 months to first cut. Dec. 2015 – Dec. 2018 hike cycle: 8 months to first cut. Disclosure NA3816562 Image: Shourov hassan / 500px / Getty All investing involves risk, including the risk of loss. Past performance does not guarantee future results. An investment cannot be made directly in an index. This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions. In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions. Stocks of small and mid-sized companies tend to be more vulnerable to adverse developments, may be more volatile, and may be illiquid or restricted as to resale. A cyclical stock is an equity security whose price is affected by ups and downs in the overall economy. The Federal Open Market Committee (FOMC) is a committee of the Federal Reserve Board that meets regularly to set monetary policy, including the interest rates that are charged to banks. Tightening monetary policy includes actions by a central bank to curb inflation. Dovish refers to an economic outlook that generally supports low interest rates as a means of encouraging growth within the economy. Disinflation, a slowing in the rate of price inflation, describes instances when the inflation rate has reduced marginally over the short term. Personal consumption expenditures (PCE), or the PCE Index, measures price changes in consumer goods and services. Expenditures included in the index are actual US household expenditures. The S&P 500® Index is an unmanaged index considered representative of the US stock market. The Russell 2000® Index measures the performance of approximately 2,000 small-cap US equities. The opinions referenced above are those of the author as of August 26, 2024. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties and assumptions; there can be no assurance that actual results will not differ materially from expectations. ©2024 Invesco Ltd. All rights reserved. When doves yell: Fed loudly signals a September rate cut by Invesco US Continue reading →

AlexLMXSilver is largely ignored, while gold has recently touched its multi-year highs. At the same time, the shiny gray metal is much more volatile and sometimes has greater potential to excel during crises and uncontrolled money-printing. I will explain why silver could perform better than gold and what advantages gold has over silver as an investment metal. Previous analysis of silver In my previous analysis of the silver market, I commented on silver breaking multi-year highs and outperforming gold. I wrote about silver’s possibility of continuing its strong performance despite the risk of higher interest rates. In the previous article, I wrote that AI technologies and green energy were all bullish factors for the precious metal. According to Jerome Powell’s recent Jackson Hole speech, however, higher rates for longer will not endure. That is bullish for both gold and silver. But gold’s performance has been substantially better than silver’s. In the next section, I will explain why this has been happening. Gold’s performance vs. silver’s Below, I have prepared several graphs. The first shows gold and silver appreciating over the last three months. The difference between the two metals was quite considerable. While gold has gained almost 6%, silver has only added 1.41% of its value. Data by YCharts We can also see this difference over a much longer time frame, namely more than 40 years. Gold has been performing much better than silver since 2011. YCharts But the biggest price surge of gold happened between 2022 and 2023. Let me also have a look at the gold-to-silver ratio used to judge the relative value of gold to silver. Gold-to-silver’s ratio The gold-to-silver ratio is currently lingering around 90. This is relatively high and suggests that gold is quite expensive compared to silver. However, the all-time high of about 120 was reached in 2020 during the coronavirus-related lockdowns. Bullion by post Let me explain why gold can, in some instances, perform much better than silver. Why is gold currently performing better than silver? Gold is now being bought by major central banks. In fact, in the first half of 2024, gold purchases by major financial institutions reached their multi-year highs, as can be seen from the diagram below. Gold.org That is because gold is a vital metal for the modern monetary system. As I have mentioned many times in my other articles, national currencies have been tied to the price of gold in many countries during different historical periods. In 1944, in Bretton Woods was established a system of payments based on the US dollar, which defined all currencies in relation to the dollar, itself convertible into gold, and, above all, equivalent to gold for trade. That simply meant that US dollars were convertible into gold at a fixed rate. Obviously, gold was also convertible into US dollars. That meant that it was impossible to issue too many USDs simply because gold supply was limited. In 1971, under Nixon, this system was cancelled to enable uncontrolled money printing to finance the US government’s ballooning expenses. This led to accumulated budget deficits and rising national debt to compensate for the deficits. The Fed As you can see from the graph above, after the 1970s, US debt started climbing fast. In spite of the loss of gold’s backing, in the eyes of many governments and central banks, the dollar is still viewed as a medium of exchange in international trade. The International Monetary Fund That is why many countries hold the USD as the largest part of their international monetary reserves. As you can see from the pie chart above, more than half of the world’s allocated reserves are held in USDs. Gold is also held as a substantial part of monetary reserves. The US is the largest owner of gold reserves. According to the World Gold Council’s Q2 2024 data, the country held 8,133.46 tons of precious metal. There are 35,274 ounces in one ton. As I am writing this, one ounce of gold is worth $2,523. So, multiplying 35,274 ounces by $2,523 gives us $88,996,302. Multiplying this by 8,133.46 gives us $723,847,862,465, or $723.85 billion. World Gold Council As I have mentioned above, gold is now being actively purchased by most central banks. Meanwhile, many governments have stopped using the USD as a medium of exchange in international trade. For example, Saudi Arabia is moving away from the USD in the oil trade as it looks at alternative markets, thus ending a long-standing “petrodollar” agreement. According to the Atlantic Council, a think tank, the end of the “petrodollar” agreement would end the dollar’s dominance. But attempts to move away from the dollar do not end here. Russia has also recently announced that its trade with China has almost completely moved away from using the USD, highlighting the two countries’ commitment to reducing their reliance on the US-led economic system. I am not saying that the USD would completely stop existing as the world’s reserve currency. But due to the fact that gold is an alternative to the USD, as a result of all these news and announcements, the yellow metal has been rallying enormously. Silver, meanwhile, is not part of the global financial system. So, these bullish factors do not directly affect the silver market. However, there were instances when silver performed much better than gold. Historical periods when silver performed better than gold Indeed, there were periods when silver performed much better than gold. Generally speaking, silver often outperformed gold during periods of strong economic growth during which industrial economies expanded and tended to perform worse than gold during periods of economic stress. On the graph below, I have circled the time periods when silver outperformed gold. YCharts The first period was in 1970–1980, when the brothers Hunt intervened in the silver market to boost the precious metal’s prices. So, the price surge was rather artificial. The second was after the Great Recession when the commodity reached its all-time highs. The unexpected surge in the prices of silver was mostly due to the global financial crisis, which made market players panic and increased private investors’ demand for small silver bars and coins. In contrast to gold, not much money was needed to invest in silver. So, at the time, investors rushed to buy relatively small quantities of silver. At the time, it has also been noted that silver’s photovoltaic use by the solar industry was a significant factor in the metal’s massive uptick. So, the major gray metal’s price upticks were due to the economic crisis, rising industrial demand for the commodity, and market manipulations. Why can silver soar? The same bullish factors could work for silver in the future. First of all, the Fed could decrease interest rates more than initially planned if macroeconomic factors deteriorate further. I also previously wrote that both gold and silver should trade much higher than they are trading now due to the excessive money supply in the US. Well, if the money supply rises even further thanks to easy monetary conditions, silver prices should rise even further. Then, silver, an industrial metal, can soar thanks to AI and green energy technologies. Green energy technologies encompass the EV sector and solar batteries. The demand for AI servers and switches is expected to soar by double digits over the next several years to keep up with the evolution of AI algorithms. This should lead to a rise in demand for silver-palladium Ag-Pd multi-layer ceramic capacitors in high-power components. In plain terms, it means that silver usage will only increase. Risks However, there are some risks to my rather bullish thesis. First, silver prices can decrease if the Fed does not ease as fast as the market is hoping. But for the sake of objectivity, it will be a problem for most asset classes because it will likely provoke a recession. Then, silver can remain largely ignored if other assets like the high-tech sector and cryptocurrencies get more of investors’ attention. Moreover, there are many more silver ETFs and other ways to invest in silver. So, the silver market is not as volatile as it used to be. That is why there is a risk that the silver price surge will not be as dramatic as it was in the 1970s or 2011. Conclusion Overall, the future looks bright for silver. Gold has outperformed the shiny gray metal due to its considerable role in the global financial system. However, silver is also sensitive to any changes in the central bank’s monetary policies. Moreover, the gray metal has many industrial uses, including AI and green energy. Higher rates for longer and investors’ attention towards other asset classes seem to be the major risks for silver. Continue reading →

DNY59Since 1450, there have been six reserve currencies. Portugal dominated the currency world from 1450 through 1530, when Spain took leadership from 1530 through 1640. From 1640 through 1720, the Netherlands controlled the world’s top foreign exchange instrument before France took over the leadership role until 1815. Great Britain ruled the world financial markets until around 1920, when the United States and the dollar rose to the top spot. Each dominant period lasted around a century, with the dollar’s current term eclipsing its one-hundredth anniversary. Aside from the passage of time, recent events have made the future of the dollar’s dominance dubious. A 2022 handshake between the Chinese and Russian leaders and geopolitical events threaten the dollar’s continued leadership role. De-dollarization will have significant ramifications for global assets. Commodities transcend borders as they feed, energize, and shelter people worldwide. A change in the international financial system that alters the U.S. currency’s position could cause dollar-based commodity prices to rise, perhaps dramatically. The dollar index is not objective and is a mirage Many market participants watch the dollar index for clues about the value of the U.S. currency. The index measures the U.S. dollar against other world reserve foreign exchange instruments. Composition of the Dollar Index Futures Contract (ICE) The chart highlights the dollar index’s 57.6% exposure to the world’s second-leading reserve currency, the euro. The index’s composition included exposure to the Japanese yen, British pound, Canadian dollar, Swedish krona, and Swiss franc, all fiat currencies. A fiat currency’s value depends on the full faith and credit of the countries issuing the legal tender, and has no backing other than economic and political stability. In today’s world, the index reflects the dollar’s value against other allied countries’ foreign exchange instruments. Interest rate differentials are the most significant factor in one of these currencies’ values against the others. Since the U.S. central bank is the leading institution, many other allied central banks follow the Fed’s monetary policy lead. The bifurcation of the world’s nuclear powers is why the dollar index has become a mirage. The February 2022 handshake between Chinese President Xi and Russian leader Vladimir Putin on a “no limits” alliance was a watershed event. Russian troops invaded Ukraine less than one month after the fateful agreement, leading to a series of U.S. and NATO sanctions on Russia. Meanwhile, China has continued with plans to reunify with Taiwan. To avoid sanctions, China, Russia, and allies have made moves to avoid using the U.S. dollar and euro to settle cross-border transactions. China is the world’s second-leading economy, and Russia is a significant commodities-producing nation. The geopolitical shift has caused the dollar’s global reserve currency role to diminish. The de-dollarization trend reflects the geopolitical landscape Together with allies, de-dollarization has begun to take hold, with the Saudis selling oil to China in yuan and India in rupee. Earlier this year, Saudi Arabia abandoned a fifty-year petrodollar agreement that prices petroleum in U.S. dollars. China and Russia have reduced dollar and U.S. government bond holdings, have increased gold holdings, and have led an effort to create a BRICS currency with some gold backing to challenge the dollar’s dominant role. Governments have increased their gold purchases over the past few years, with China and Russia taking the leading role. Moreover, as the world’s leading gold producers, China and Russia are likely vacuuming domestic gold production to increase reserves. Since strategic commodity inventories are a national security issue in China and Russia, their reserves are likely higher than current estimates. Leading Gold Mining Countries in 2023 (Statista) The chart highlights that China and Russia produced 22.7% of the world’s gold mine output in 2023. The thirst for gold, the world’s oldest currency and means of exchange, is a commentary on the role of the U.S. dollar in the worldwide financial system and its position as a reserve asset. The handshake creating the China-Russia alliance began the era of de-dollarization. The pricing mechanism for commodities- De-dollarization presents significant ramifications for raw material prices The dollar’s role as the world’s reserve currency made the U.S. currency the benchmark pricing foreign exchange instrument for most raw materials. The London Metals Exchange is the world’s leading nonferrous metals trading arena. Meanwhile, in the U.K., the LME metals contracts, including copper, aluminum, nickel, lead, zinc, and tin, use the U.S. dollar as the pricing currency. Moreover, the London bullion market is the leading gold and silver trading venue. Gold and silver prices in London use the U.S. currency for pricing. Metals are not the only commodities trading in dollars. Agricultural products and energy commodities also use the U.S. currency as the leading pricing benchmark. The dollar’s descent on the global stage supports higher commodity prices As a reserve currency, governments, central banks, and monetary authorities held U.S. dollars as their critical currency for cross-border transactions. De-dollarization that reduces dollar holdings will lead to trading and bartering for other currencies and assets. The decline in the dollar’s position is bullish for commodities because it erodes the full faith and credit in the U.S. currency, leading to inflationary pressures pushing commodity prices higher. Therefore, even if the dollar index rallies over the coming months and years, it only relates to the dollar against the other reserve currencies in the index’s basket. Increasing global trading in different currencies means the dollar’s value could decline even if the dollar index strengthens. DBC is a diversified commodity ETF with exposure to energy, agriculture, and metals The significant shift in the geopolitical landscape that leads to de-dollarization and competition from a potential BRICS currency with gold backing could increase inflationary pressures, eroding the U.S. dollar’s purchasing power and pushing commodity prices higher. The fund profile for the Invesco DB Commodity Index Tracking Fund (NYSEARCA:DBC) states: Fund Profile for the DBC ETF Product (Seeking Alpha) The most recent top holdings include: Top Holdings of the DBC ETF Product (invesco.com) DBA invests over half its assets in energy commodities. DBA has additional exposure to precious and base metals, and agricultural commodities. At $22.41 per share, DBC had $1.50 billion in assets under management. DBC trades an average of over 995,000 shares daily and charges a 0.85% management fee. The ETF paid a $1.09 annual dividend, translating to a 4.86% yield. Five-Year Chart of the DBC ETF Product (Barchart) The five-year chart shows the sharp 194.3% gain from the 2020 pandemic-inspired $10.41 low to the 2022 $30.64 per share high. DBA has corrected from the 2022 high, and while the current trend is slightly bearish, the ETF has consolidated from $21.51 to $24.09 per share in 2024. De-dollarization could dramatically change the commodity markets over the coming years, pushing prices appreciably higher. DBC invests in a diversified portfolio of raw material assets that feed and power the world. As the dollar loses its dominant position, commodity prices will likely increase, and the Invesco DB Commodity Index Tracking Fund ETF should appreciate. Continue reading →