Category Archives: Silver

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 →

Funtap/iStock via Getty ImagesBy Donn Goodman Welcome back, readers. We are glad you have joined us. We hope that you are enjoying these longer summer days accompanied by the recent positive weeks in the stock market. “The time has come for policy to adjust. The direction of travel is clear. My confidence has grown that inflation is on a sustainable path back to 2%.” These were the words that Jerome Powell used on Friday at the annual conference in Jackson Hole, Wyoming. (I don’t think any of us could realize just how important the Jackson Hole conference has become). The stock markets positively reacted Friday with a sigh of relief. There had been somewhat of a negative anticipatory feeling on Thursday as many pundits grew concerned the Federal Reserve might not become quite as “dovish” as those words above indicate. You will recall that two ½ years ago, the Federal Reserve embarked on an aggressive tightening policy to bring down inflation. The Federal Reserve hiked borrowing costs to crush pandemic-spurred inflation. Additionally, in 2021-2022, an acceleration in government spending and a curtailing of energy development exacerbated the situation, and inflation took a long time to start on a downward path. Higher interest rates over the past 24 months have crippled many sectors of the economy, including home buying and borrowing for small companies that rely on regional banks for business expansion. The calls for the Fed to lower rates began in earnest late last year and have been repeated throughout 2024. But the Fed stuck to their guns and proclaimed that their overnight rates would stay “higher for longer.” I guess us old timers in the market remember the 1970s all too well and how stubborn inflation can be to bring down. All of us as consumers (especially of rents and food) understand this recent cycle of inflation has been punishing. Many families in the US have a hard time being able to afford to put food on the table. Mish and I have consistently said that the Fed should keep rates higher and avoid being premature in lowering them, thus spurring on potentially sticky and lingering inflation. In the face of them lowering rates to avoid a hard landing, the possibility of elevated pockets of inflation remains. I have covered some of these points and more the past two weeks in this column. The Federal Reserve’s Job Just to rehash the Fed’s job here, they have a dual mandate to maintain price stability and to achieve maximum employment. Their view of whether interest rates should be increased or decreased is always dependent on the data. That said, there are now clear signs that the labor market is weakening, as it has recently risen to a 3-year high of 4.3% unemployment. Additionally, this past week, the BLS (Bureau of Labor Statistics) revised job growth for 2024 downward (sharply). Jobless claims also jumped, and suddenly, the labor market looks a bit weaker than expected. See chart below: BLS revisions. The preliminary revision showed 818k fewer jobs in the year through March than originally estimated. That brings the pace of job growth from 242k to 174k per month. This was enough to convince the “data-dependent” Fed that it was time to move and a September rate cut is all but assured. The only question will be if it is the typical “first cut” of 0.25% or will the Fed get more aggressive and go 0.50%? Much of the Fed’s perspective and “data dependency” will be based on several important indicators to make their inevitable determination. See the Fed’s input variables below: The stock and bond markets have been hanging on the anticipation that the Fed is ready to get more dovish and begin the lowering rate cycle. Odds that are in the futures markets currently show a reduction of 1.0% in the Fed Fund rates by year-end. Personally, with strong earnings, positive GDP and consumers’ still robust spending (see last week’s market outlook on retail spending), I wouldn’t take that bet. I would like to see 0.50-0.75% in a rate reduction. That would be a good start. Typically, the Fed is gradual in the first rate cuts. However, the markets, as noted above, are expecting an aggressive reduction in rates by year-end, signaling a harder landing than anticipated. See charts below. Fed vs. market. “Historically, the Fed has been relatively gradual in policy easing during soft landings, which contrasts with current market pricing.” The markets It was a good week for the stock and bond markets, as the S&P 500 had a new closing-week high (up 1.4% for the week, similar to the DJIA. The tech-heavy QQQ was the weakest of the 3, only up 1.0%). See chart below: The big winners this past week were small-cap stocks, as the IWM (Russell 2000) was up over 3.0% for the week. This is one of the areas of the market that will benefit most from a reduction in borrowing costs. See chart on the IWM from Friday below: Homebuilders had a positive week as investors plowed money into financial stocks with the caveat that borrowing will pick up and home mortgages will accelerate. Given the stock market’s impressive move thus far in 2024, brokerage firms also accelerated to new highs. See charts that follow: And a bit of sarcasm in the below chart as the S&P 500 sets up for a continued bullish move higher. See illustration below: A much more broad participation in the markets. The recent rally in the S&P 500 has been broad-based and not all about the Magnificent 7. In fact, the stock market’s price appreciation has seen many underperforming areas of the markets that are now “catching up”. See chart below to exemplify this: This recent broadening out of the stock market is a positive sign. The equal-weight S&P 500 (RSP) broke out to new highs this past week. See the summary and chart below: The S&P 500 (cap-weighted) remains only -0.6% below record highs. The equal-weight S&P 500 (RSP) is already there. This is evidence of a broad and healthy market. The Magnificent 7 (see note above) led the S&P 500 during the first leg of this bull market, but we’re finally seeing strength broaden out as the bull market matures. Breadth has been one of the biggest concerns throughout 2024, but participation has now dramatically improved. Yet, the markets are giving off some “mixed messages” as they wrestle with an economy that might enter a hard landing (recession) or, hopefully the Fed can thread the needle and orchestrate a soft landing going forward. See the mixed signal chart below: Mixed messages. Surging stocks suggest a soft landing, rising bonds and gold signal a hard landing, falling prices for economically sensitive oil and copper point to weak global growth, and a lower USD raises doubts about international investor confidence. Investor sentiment remains bullish. See below. Investor Intelligence. “50% bulls, 22% bears. Bull-bear spread rose for the first time in 4 weeks. Sentiment has been reset but optimism remains intact. That’s bull market behavior.” I now turn it over to Keith and his team and the Big View bullets that follow. As always, thank you for reading. Hopefully, you had a profitable week and enjoyed the positive market moves. Take care and good luck in your investments in the upcoming week ahead. Risk-On Markets were positive on the week led by the Russell 2000, which had a banner day on Friday. Both the S&P and the Dow had their highest weekly closes ever. (+) Volume patterns confirm the positive move across all the indices. (+) Value is leading growth on a long and shorter-term basis, though both are in bull phases, which is considered bullish. Growth stocks are still leading the S&P. (+) 13 of the 14 sectors we follow were up, led by home builders (XHB) which benefited from the prospect of the Fed lowering rates. Consumer discretionary outperformed consumer staples. (+) Looking more at the global macro perspective, Clean Energy (PBW) and the metals (DBB) led, gaining on the possibility of lower rates. (+) Risk gauge improved back into risk-on readings. (+) The McClellan Oscillator for both the S&P and NASDAQ is back in strong positive territory, confirming the broader market move up. The cumulative Advance/Decline line is hitting new highs. (+) 52-Week New High New Low ratios for both NYSE and NASDAQ 100 are flipping positive. (+) The color charts – which looks at the moving average of the percentage of stocks over key moving averages – have moved into bullish mode across the board. (+) Looking at the percentage of stocks over key moving averages, on a short-term basis, S&P and IWM are looking overbought, though they are improving over a medium-to-long term basis. (+) Five of the six modern family members closed in bullish phases led by Regional Banks (KRE) on Friday, up over 5%. Semis were up on the week but remain in a strong warning phase, potentially signaling a passing of the baton onto other industries or sectors. (+) Emerging markets confirmed their bull phase, while more established equities exploded and closed on new all-time highs. (+) Soft commodities (DBA) and copper (COPX) regained their bullish phases this week. (+) With the prospect of the Fed lowering rates, the dollar is under pressure and the euro has hit its highest levels in over a year and over its 200-week moving average for the first time since mid-2021. (+) The short-end of the yield curve rallied off of sentiment that the Fed would be cutting rates. Equities could roar if economic data holds up. (+) Neutral Market sentiment, as measured by VIXY, has reversed the huge spike as if the dramatic sell-off from early August never happened. The cash index VIX.X remains elevated from its extreme lows over the summer. (=) Gold closed on new weekly all-time highs and still looks very strong. (=) S&P and NASDAQ have unresolved bearish engulfing patterns from Thursday that need to resolve to the upside. (=) Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Continue reading →

Excerpt from this week’s: Technical Scoop: Dovish Culmination, Long Inversion, Differed Dollar

Source: www.stockcharts.com

Thanks to Jerome Powell and thoughts of an interest rate cut coming, gold prices held $2,500 after hitting a new all-time high at $2,570. On the week, gold rose 0.3%. This continues what we believe is a stealth rally in gold. The pattern that formed after that high in March 2024 still appears as a rising or ascending triangle. That’s bullish. This past week silver led with a gain of 3.4%. That was also quite positive. Besides Powell signaling interest rate cuts, gold has been having a banner year, thanks to strong central bank buying, strong demand particularly out of Asia (India and China), and safe haven status thanks to geopolitical risk with the wars in Russia/Ukraine, Israel/Hamas (and others), and a potentially divisive U.S. election.

Besides gold and silver, platinum gained 0.4%. However, palladium fell 0.1% while copper regained $4.20, up 1.5%. Copper rising and potentially leading again is also positive for gold. But it was Powell’s rate cut musings that helped spark gold’s rise on Friday, as well as a rise for other commodities, including oil and copper. $2,600 is now in sight. Support is seen down to $2,500, but below that we have further support at $2,400 and even better down to $2,325. Not that we expect to fall that far on any pullback. We continue to have what we see as a stealth rally for gold and if funds started shifting more into the precious metals market, including the gold stocks, it is such a small market that it would only take about a 1% shift out of the broader market. As to the gold stocks, the Gold Bugs Index (HUI) gained 2.4% while the TSX Gold Index (TGD) was up 0.8% this past week. Both saw fresh 52-week highs earlier in the week.

The message is simple. Buy gold and gold-related products. Gold is preferred as, unlike gold stocks, it has no liability.

Gold/US 30Y Bond Ratio, Gold/S&P 500 Ratio 1980–2024

Source: www.stockcharts.com

Does one hold gold, bonds, or stocks? The chart above depicts the Gold/US 30Y Bond Ratio and the Gold/S&P 500 Ratio. In the first instance, gold has clearly broken away in its favour. Hold gold over bonds. Note what appears to be a multi-year cup and handle pattern. The first target at 20.02 has been seen and exceeded, suggesting we could move to the next target up to 24.10. The Gold/S&P 500 Ratio is somewhat unclear. However, we note a long period forming what appears to be a rounding bottom. That pattern broke out in 2007 and culminated in the gold top in 2011. The current pattern is not dissimilar to what was seen from 1990 to 2006 before it broke out in favour of gold. That it hasn’t is testament to the strength of the U.S. stock market. Gold has kept pace, but neither have broken away from the other. The pattern, however, suggests it should break out in favour of gold. That gold is favoured over U.S. treasuries may be reflected in the action of central banks that have been unloading U.S. treasuries in favour of gold.

Source: www.stockcharts.com

One good thing about silver’s action this past week is that it finally appears to be taking leadership amongst the precious metals. We have often noted that a really good rally won’t get underway until silver takes the lead. This past week silver gained 3.4% to gold’s 0.3%. It was the second week in a row that silver has led. But before we get too excited, silver still lags gold in a number of areas. Gold has been making all-time highs, while silver is not even close. Gold has broken out to new highs but silver has not, despite recent gains. We first need to get over $31 to suggest new highs above the recent high of $32.75 and we need to get over $33 to suggest we could now be on our way to targets up to $39/$40. There is support now at $29, but below that we could then fall back to $27. Silver’s RSI is still only at 58.5, suggesting we have considerable room to move higher. While silver is responding to the same thing as gold, namely interest rate cuts and a falling US$ Index, silver also remains in deficit supply even as demand has been rising, thanks to green energy projects. What we also need to see is a pickup in volume for silver, not dissimilar to what we saw last April 2024 and to a lesser extent in May 2024.

Source: www.stockcharts.com

Gold stocks enjoyed an up week, but after hitting a high on Tuesday August 20 the stocks pulled back on what may have been profit-taking. On the week, the TSX Gold Index (TGD) was up 0.8% while the Gold Bugs Index (HUI) gained 2.4%. Anglo Gold (AU) is not a component of the TGD and it enjoyed a strong up week, giving the HUI the edge. Nonetheless, both indices did make fresh 52-week highs on Tuesday before pulling back. We did hit the top of what may be bull channel this past week. However, the breaking of what may have been a double top suggests to us that we are still poised to go higher. Potential targets are up to 404. The all-time high is 455 set back in 2011. At this point we are still over 20% away from that high. The HUI has a lot more work as its high was 639 in 2011 vs. 319 today. That leaves the HUI needing to gain 100% from current levels to reach that high. For the TGD, there is support at 365, but below that good support doesn’t come in until 340/342. Below that level the rally may be over. The index is still not overvalued here, nor is it overbought here with an RSI at 61.3. It still has considerable room to move higher.

Read the FULL report here: Technical Scoop: Dovish Culmination, Long Inversion, Differed Dollar

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 →

NEW YORK (AP) — The Federal Reserve is poised to cut its benchmark interest rate next month from its 23-year high, with consequences for consumers when it comes to debt, savings, auto loans and mortgages. Right now, most experts envision three quarter-point Fed cuts — in September, November and December — though even steeper rate cuts are possible.“The time has come” for the Fed to reduce interest rates, Powell said Friday in his keynote speech at the Fed’s annual economic conference in Jackson Hole, Wyoming. “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.”Based on Powell’s remarks and recent economic data, the central bank is expected to cut its key rate by a quarter-point when it meets next month and to carry out additional rate cuts in the coming months.Here’s what consumers should know:What would the Fed’s rate cuts mean for savers?According to Greg McBride, chief credit analyst for Bankrate, savers should lock in attractive yields right now, before the expected rate cuts begin.”For those who might be looking at Certificates of Deposit or bonds — you want to jump on that now,” he said. “There is not a benefit to waiting because interest rates are going to be moving lower.”McBride stressed that anyone closer to retirement has a good opportunity to lock in CDs at the current relatively high rates.“If you do so, you’ll provide yourself a predictable flow of interest income at rates that should outpace inflation by a pretty healthy margin,” said McBride.How would the rate cuts affect credit card debt and other borrowing?“Your credit card bill is not going to plunge the day after the next Fed meeting,” cautions LendingTree chief credit analyst Matt Schulz. “Nobody should expect miracles.”That said, the declining benchmark rate will eventually mean better rates for borrowers, many of whom are facing some of the highest credit card interest rates in decades. The average interest rate is 23.18% for new offers and 21.51% for existing accounts, according to WalletHub’s August Credit Card Landscape Report.Still, “it’s really important for people to understand that rates probably aren’t going to fall that quickly,” Schulz said.He said it’s important to take steps such as seeking a 0% interest balance transfer or a low-interest personal loan. You can also call your credit card issuer to see if you can negotiate a better rate.”In the short term, those things will have a much bigger effect than falling interest rates,” Schulz said.How about mortgages?The Federal Reserve’s benchmark rate doesn’t directly set or correspond to mortgage rates, but it does have an influence, and the two “tend to move in the same direction,” said LendingTree senior economist Jacob Channel.In recent weeks, mortgage rates have already declined ahead of the Fed’s predicted cut, he pointed out.“It goes to show that even when the Fed isn’t doing anything and just holding steady, mortgage rates can still move,” Channel said.Melissa Cohn, the regional vice president of William Raveis Mortgage, echoed this, saying that the most important thing is what signal the Fed is sending to the market, rather than the rate change itself.“I’ve heard from a lot of people who locked in (their mortgage rate) over the course of the past 18 months, when rates were at their peak, already asking whether it’s time to refinance and what savings they could have,” she said. “I think that the outlook is good, and hopefully that spills into the real estate market, and we get more buyers in the market.”Channel said that the majority of Americans have mortgages at 5%, so rates may have to fall further than their current average of 6.46% before many people consider refinancing.And auto loans?“With auto loans, it’s good news that rates will be falling, but it doesn’t change the basic blocking and tackling of things, which is that it’s still really important to shop around and not just accept the rate that a car dealer would offer you at the dealership,” said Bankrate’s McBride. “It’s also really important to save what you can and be able to try to put as much down on that vehicle as you can.”McBride does predict that the beginning of rate cuts and the avoidance of a recession will lead to lower auto loan rates in 2024 — at least for borrowers with strong credit profiles. For those with lower credit profiles, double digit rates will likely persist for the remainder of the year.What’s going on with inflation and the job market?Last week, the government reported that consumer prices rose just 2.9% in July from a year ago, the smallest increase in over three years. Employment data, however, gives some economists pause. New data has showed hiring in July was much less than expected and the jobless rate has reached 4.3%, the highest in three years — one measure of a weakening economy. That said, robust retail sales have helped quell fears of a recession.The rate at which the Fed continues to cut rates after September will depend in part on what happens next with inflation and the job market, in the coming weeks and months.___The Associated Press receives support from Charles Schwab Foundation for educational and explanatory reporting to improve financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism. Continue reading →

JimVallee/iStock via Getty ImagesBy James Knightley There are some strong comments coming through from Chair Powell at his Jackson Hole speech. We get the usual bits and pieces about inflation looking better, and the focus is now much more on jobs, but he is as categorical as he can be with the statement, “The time has come for policy to adjust. The direction of travel is clear”. This follows on from the minutes to the July FOMC meeting, released on Wednesday, that said, “the vast majority [of FOMC members] observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting”. There is no discussion of 25bp or 50bp at the September FOMC meeting – merely that “the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks”. Nonetheless, he does allude to the fact that they could cut rates a lot should conditions warrant it – “The current level of our policy rate gives us ample room to respond to any risks we may face, including the risk of unwelcome further weakening in labor market conditions.” There are currently around 33bp of cuts priced for the 18 September FOMC meeting and 100bp by year-end, with a further 125bp of cuts next year. That looks fair given the current situation. Between now and the 18 September decision, we have the core PCE deflator (30 August), which the market is confident on a 0.2% month-on-month print given the inputs from CPI and PPI. Then it is the jobs report on 6 September, and that is the critical one. Note, Powell today stated that “we don’t seek or welcome further cooling in labour market conditions”. If we get a sub-100k on payrolls and the unemployment rate ticking up to 4.4% or even 4.5% then 50bp looks more likely. If payrolls come in around the 150k mark and unemployment rate stays at 4.3% or dips to 4.2%, we can safely say it will be a 25bp. Then on 11 September, it is core CPI. 0.2% MoM or lower looks likely there – we are currently leaning in the direction of a possible 0.1% on the potential for the jump in July primary rents to reverse. Content Disclaimer This publication has been prepared by ING solely for information purposes irrespective of a particular user’s means, financial situation or investment objectives. The information does not constitute investment recommendation, and nor is it investment, legal or tax advice or an offer or solicitation to purchase or sell any financial instrument. Read more Original Post Continue reading →

Philadelphia Federal Reserve President Patrick Harker provided a strong endorsement to an interest rate cut on the way.
“I think it means this September we need to start a process of moving rates down,” Harker told CNBC.
Kansas City Fed President Jeffrey Schmid also spoke to CNBC, offering a less direct take on the future of policy, though he leaned toward a cut ahead.

Philadelphia Federal Reserve President Patrick Harker on Thursday provided a strong endorsement to an interest rate cut on the way September.
Speaking to CNBC from the Fed’s annual retreat in Jackson Hole, Wyoming, Harker gave the most direct statement yet from a central bank official that monetary policy easing is almost a certainty when officials meeting again in less than a month.

The position comes a day after minutes from the last Fed policy meeting gave a solid indication of a cut ahead, as officials gain more confidence in where inflation is headed and look to head off any potential weakness in the labor market.
“I think it means this September we need to start a process of moving rates down,” Harker told CNBC’s Steve Liesman during a “Squawk on the Street” interview. Harker said the Fed should ease “methodically and signal well in advance.”
With markets pricing in a 100% certainty of a quarter percentage point, or 25 basis point cut, and about a 1-in-4 chance of a 50 basis point reduction, Harker said it’s still a toss-up in his mind.
“Right now, I’m not in the camp of 25 or 50. I need to see a couple more weeks of data,” he said.
The Fed has held its benchmark overnight borrowing rate in a range between 5.25%-5.5% since July 2023 as it tackles a lingering inflation problem. Markets briefly rebelled after the July Fed meeting when officials signaled they still had not seen enough evidence to start bringing down rates.

However, since then policymakers have acknowledged that it soon will be appropriate to ease. Harker said policy will be made independently of political concerns as the presidential election looms in the background.
“I am very proud of being at the Fed, where we are proud technocrats,” he said. “That’s our job. Our job is to look at the data and respond appropriately. When I look at the data as a proud technocrat, it’s time to start bringing rates down.”
Harker does not get a vote this year on the rate-setting Federal Open Market Committee but still has input at meetings. Another nonvoter, Kansas City Fed President Jeffrey Schmid, also spoke to CNBC on Thursday, offering a less direct take on the future of policy. Still, he leaned toward a cut ahead.

Schmid noted the rising unemployment rate as a factor in where things are going. A severe supply-demand mismatch in the labor market had helped fuel the run in inflation, pushing wages up and driving inflation expectations. In recent months, though, jobs indicators have cooled and the unemployment rate has climbed slowly but steadily.
“Having the labor market cool some is helping, but there’s work to do,” Schmid said. “I really do believe you’ve got to start looking at it a little bit harder relative to where this 3.5% [unemployment] number was and where it is today in the low 4s.”
However, Schmid said he believes banks have held up well under the high-rate environment and said he does not believe monetary policy is “over-restrictive.”
Harker next votes in 2026, while Schmid will get a vote next year. Continue reading →

Guido MiethWhile equities continued to piece together an impressive weekly win streak that ended with slight losses across the major indexes on Tuesday, it is getting more and more clear that the U.S. economy is slowing. My current view is that the country will be in at least a shallow recession no later than the first half of 2025. With the market selling at 22 times forward earnings on the S&P 500 and at a price-to-sales ratio rarely if ever seen (among other valuation metrics like price-to-book showing the same extreme valuations), investors are clearly not positioned for this potential economic scenario. Price to sales ratio – S&P 500 (Multpl) So, today, we will take a look at five signals showing that key portions of the economy are clearly deteriorating. Unemployment Rate: Let’s start with an obvious sign of increasing economic duress, the rising unemployment rate. The U.S. unemployment rate has quickly (from a historical perspective) moved from 3.5% last July to 4.3% in the July 2024 BLS report. U.S. Monthly Unemployment Rate (Statista) This move has triggered the so-called Sahm Rule that has been violated prior to every recession since the 1950s. Investors will get another key data point on September 6th when the Bureau of Labor Statistics puts out the jobs report for August. I am personally hoping that Hurricane Beryl in July was one of the reasons only a paltry 114,000 positions (consensus was for 174,000) were created in July, and we see a rebound in August. The NY Fed reported earlier this week, however, that ‘the share of individuals who said they’re searching for a job in the past four weeks rose to 28.4%, the highest level since March 2014, and up from 19.4% in July 2023.’ GDP Growth Has Slowed Substantially: CBO/Capital Economics The federal government has run a fiscal deficit north of six percent of GDP both in FY2023 and, so far, in FY2024 ($1.52 trillion for the first ten months of the government’s fiscal year). With the debt to GDP ratio already at the highest levels in U.S. history, this is clearly unsustainable. Future administrations will either have to raise taxes and/or cut spending growth rates. The tax cuts legislated in 2017 are also set to expire in 2025. Higher taxes and/or lower levels of spending will be headwinds for the economy at that point. Atlanta Fed GDPNowAtlanta Fed GDPNow Keep your eye on how much the Government is spending, because that is the true tax.” – Milton Friedman It was one thing when all this taxpayer largess was driving significant economic growth, and GDP growth was north of four percent in the back half of 2023. However, that growth has slowed substantially here in 2024, with GDP growth of 1.4% in Q1 and an initial estimate of Q2 GDP of 2.8%. Currently, the Conference Board only sees 0.6% annualized GDP growth in Q3 and 1.0% in Q4. The Atlanta Fed’s GDPNow is calling for higher third quarter growth than the Conference Board, but that estimate was revised down sharply a few days ago. Leading Economic Indicators: On Monday, the U.S. Leading Economic Indicators or LEI were down for the 28th of the last 29 months. This is another historical indicator that has had a solid record of predicting coming recessions. The indicator has had a definite lag this time around. My guess is that is because of the trillions of dollars Congress has pumped into the economy with Covid stimulus programs and massive infrastructure spending packages. Conference Board This month’s negative LEI reading was primarily caused by ‘a sharp deterioration in new orders, persistently weak consumer expectations of business conditions, and softer building permits and hours worked in manufacturing drove the decline, together with the still-negative yield spread’ More Signs Of Consumer Distress: The lower and middle-income consumer has been under pressure all through 2024 which has been manifested in poor guidance in both the first and second quarters from the likes of Home Depot (HD), Starbucks (SBUX), Loews Corporation (LOW), McDonald’s Corporation (MCD), Macy’s (M), Nike (NKE) and myriad other well-known consumer focused names. However, recently, areas of strength in consumer spending are starting to show some cracks. E-Commerce sales in the second quarter were up only 1.3% on a quarter-over-quarter basis, following a 2.1% gain in the first quarter of this year. CNBC just posted a story on how demand for travel spending, which has been more than robust for over two years, seems to be ebbing. Federal Reserve Bank of St. Louis Finally, the lowest mortgage rates in more than a year aren’t helping the housing sector yet. Housing starts dropped 16% on a year-over-year basis in July. Existing home sales also had their poorest July since Redfin started tracking this metric in 2012. Housing Affordability is still near historical lows, outside the peak of the Housing Boom in 2006. The Yield Curve: The Treasury yield curve has been consistently inverted since the early summer of 2022. The last time the yield curve was inverted for this long of a duration ran into 1929. Let’s say that it did not end well for investors. In addition, the divergence between the two and ten-year Treasury yield hit their highest level since 1981, when the U.S. was in the middle of a brutal double deep recession, in July 2023. This is another historically reliable indicator of an upcoming recession, whose ‘lag’ has likely been extended significantly by the excess trillions of dollars thrown at the economy by the administration and Congress in recent years. However, the yield curve has started to significantly un-invert in recent months. After peaking at just under 110 basis points in the summer of 2023, the divergence between the two- and ten-year treasury is currently less than 20 bps. They will likely normalize completely before the end of the year as the Chairman Powell starts to cut the Fed Funds rate, which is expected to begin at the September FOMC meeting. The 10-Year and 30-Year Treasury yields have been normalized for some time now. Investors appear to be banking on rate cuts to re-energize the economy and further boost the markets. However, rate cuts are unlikely to be the panacea they are hoping for. A recent decline of more than one percent on the average 30-Year mortgage rate has done nothing to revitalize the housing sector to this point, after all. Forbes In addition, the start of cutting rates has notably happened in front of some historical bear markets, especially when the economy is decelerating, like it is now. The Fed started to cut rates from almost identical levels in September 2007, just months before the Great Financial Crisis of 2008/2009. Forbes The central bank also started to cut rates at the beginning of 2001, when the market was in the midst of the Internet Bust. The market did not bottom until late September 2022. From peak to trough, the NASDAQ lost over 80% of its value during this era. You simply can’t raise rates the most in recent history at the fastest pace in recent history on the most debt outstanding in history and not face consequences.” – ZeroHedge I have used the above quote from a ZeroHedge article earlier this month a few times in recent articles. I think it captures the complacency of the markets given the huge explosion of debt in recent years and investors’ hopes that we are going to get out of this predicament without paying the piper. I just don’t believe that is going to happen, especially with the economy clearly slowing. Prudent investors should position their portfolios accordingly. Continue reading →