The precious metals markets are just sort of hanging around right now. No compelling bad news to drive the prices higher. We also have way too much skepticism by the average Joe and Sally on the economy for the metals to move lower. It feels eerily like 2007 before the financial crisis began. Back then the news wasn’t good but it wasn’t terrible, and the financial media seemed to focus on the positive for lack of more interesting things to talk about.
In reality, the economic data foreshadowed the coming mortgage market problems, but years of market momentum kept anyone from complaining leading up to the crash. It was going to be all ok, we were told. And then a year later, the system was melting down and a serious panic had begun to set in. I think that is where we are now, albeit with a much worse banking system crisis brewing than before.
Gold and Silver Analysis
Gold and silver are in a hover pattern as they wait for the signal from the economy on what to do next. I have said this so many times that many readers are undoubtedly tired of it. But the fact that gold and silver are very close to where they were at the start of the summer is an incredibly bullish sign. Normal summers see gold fading as much as 10% as traders take vacations and focus on their stock portfolios. The hospitality industry tends to do very well during the summer, for example, and traders will rotate positions into what is hot.
This summer the metals had a couple of mini-fades but nothing substantial. And that means awareness of the severe economic problems we face has set in. It’s not enough for the derivative traders to go fully bullish into the metals paper markets. But it was enough to prevent gold and silver from becoming ‘irrelevant’ at the same time.
Here is the gold chart, along with the commitment of traders (COT) chart showing positioning by the large trader groups. Commentary will follow.
Gold is sitting above its 50 and 200-day moving averages, which tells me that traders are somewhat optimistic about price action in the next 2-3 months. Remember that these are FUTURES market prices where traders take 2-3 month positions (bets) on the price at a time. The trend is down since May, but the 200 day is still up, indicating the market isn’t headed for an extended bear.
We can see on the COT report lots of red, which is where I highlighted the long and short positions that move against a positive gold price. In gold it was only the Managed Money category, representing hedge funds and Wall Street that were bullish on gold. And as usual, the price moved against them because every other player went short. The easiest explanation is that gold had become too bullish and traders didn’t believe it was time for a bull market as no major economic catastrophes have been reported as of late. And on a short-term basis, that is probably the right call to make.
Silver is, and always has, been a different animal than gold. If any metal more exemplified the ‘animal spirits’ mentality than silver, I haven’t seen it. If you follow Silver, chances are you have pulled out more than your fair share of hair over the years. But just about the time silver investors are fed up and about to quit, it sets your hair on fire with a bull run that would make your grandmother blush.
Technically, what we see forming in silver is a wedge pattern. These are consolidation patterns where we see both highs and lows converge over time into a tight range. I highlighted this with the orange lines on the chart. This price pattern usually either signals maximum indecision, or maximum apathy, on any given security or commodity. Specifically with silver, the price is converging around the $24.50 price point which is VERY significant, historically speaking.
That is the ‘battle line’ in silver, where prices above it over the last 15 years have meant we are about to take a ride on the silver bullet train. You will see more silver investors excited about silver when it breaches this line than at just about any other point on the chart, including the mystical $30 price point at which silver investors typically threaten to sell their houses and go all in on physical silver.
Looking at my highlights on the chart, along with the red and blue moving average ‘squiggly’ lines, shows that silver is heading towards the top of the wedge pattern. Technically speaking, it is bullish and indicates silver investors are indecisive but still hopeful. And of course, people will likely call me a silver perma-bull for reading the chart this way, but, it is because of what I see in the general economy, which we will get to in a moment.
The silver cot report is a bit of a bloodbath when one considers the only real traders going long are the traditional “losers”, the hedge funds and financial houses that make up the Managed Money category. But that is how the market works.
Prices are bid up and the rug is pulled out, typically by the swap dealers, also known as the bullion banks, who are there to make nickels and dimes on each of thousands of contracts at a time. This is how they play the market, and why they rarely lose. In fact, it has been reported in the financial press that JP Morgan hasn’t lost money on precious metals derivatives in a very long time while logging over a billion in profits in the last few years.
They are the professionals and that is their game. It does not; however, stop the precious metals from doing a ‘moon shot’ when we have a recession. Even the bullion banks won’t short the metals then, as they would stand to lose millions in the trade. So fear not, readers. The bullion banks can’t keep the market down when it really wants to run, nor would they want to. They will position long in this market long before it happens, which is precisely why we watch the Cot report in the first place.
The Macro View
Last week, get received a lot of data. This makes sense since it is the first few days of the month, for which we get the two unemployment reports; the job claims numbers, and a host of other economic stats. Let’s break it down for you and tell you what it means in simple terms.
Employment numbers are not reliable at this point. Despite ADP revising its entire jobs model earlier this year based on the government’s non-farm report from the BLS, their numbers CONTINUE to diverge. Put plainly, even though ADP bowed to the US government and copied their methodology, they still get a much different number than the BLS does. Anyone who continues to believe the government is reporting honestly on jobs must be living on planet Mars. There is no credibility left in that report WHATSOEVER.
Even so, we see that the BLS number was up to 187,000 jobs created, about 30k more than last month. At the same time, it was reported the BLS changed their calculation AGAIN which downward revised their numbers not only for the current month but at least the past year. Meaning, that the amount of job gains reported for the last year was severely overstated. This is after the BLS previously made another methodology change in January of this year which revised all of their previous calculations UPWARD. Those guys simply cannot make up their mind what story they want to tell, it seems. Again, there is now zero credibility in the official government job numbers.
ADP reported a significant drop in job creation from 371k last month to 177,000 this month, which feels more realistic as I scan the economy. The rest of the economic data isn’t wonderful, folks. Job openings fell almost half a million this month. GDP fell 0.3%, which makes more sense in a declining labor environment than in an expanding one.
Retail and wholesale inventories both fell, which falls in line with the declining purchasing manager expectations we reported on last time and the fall in durable goods orders. Both producers and consumers are buying less stuff, indicative of a flagging national economy.
And don’t look now, as the ‘core’ inflation index the Fed counts on for policy decisions is now rising again. The PCE index is up 0.3% and the core PCE index is up 0.1%. That may not sound like much, but when prices rise as production and jobs are falling, it means rising prices are not demand-driven. It is the increased monetary supply that is bidding up the prices of goods. Oh, and wages fell 0.2% meaning your paycheck will buy less as prices rise than they did before.
Manufacturing and construction are both very slightly up, but those are minor parts of the economy when compared with services. And honestly, without those gains, the whole economic report may have looked much worse this month.
Story of the Week
The major stories of the past week are the planned labor strikes popping up across the world. I will report on two of them, but remember the shipping industry in the US suffered recent union battles at both Yellow and UPS. The trend of striking workers demanding higher pay is starting to become obvious, and it stems from inflation having whittled employee purchasing power so far that people simply cannot make ends meet anymore.
The first story comes from Australia, where Chevron LNG workers have threatened to strike starting September 14th overpay and working conditions. The announcement from the union is particularly brutal as it threatens to cause billions in losses to the company, per their Facebook post [emphasis mine].
“The Offshore Alliance is escalating protected industrial action to demonstrate that our bargaining negotiations are far from ‘intractable,'” Offshore Alliance wrote in a Facebook post.
The union continued, “Offshore Alliance members are yet to exercise their lawful workplace rights to take Protected Industrial Action and our bargaining claims will look more and more reasonable as Chevron’s Gorgon and Wheatstone LNG exports dry up.”
“The Offshore Alliance Log Of Claims will ultimately claim which Chevron will agree to, but not before they lose a few $Billion – judging by the form guide,” it said.”
That union isn’t messing around! And not to be outdone by the shipping unions, the northeastern rail union plans to strike in 2024 over wage demands. The walkouts and strikes threaten to ‘derail’ [pun intended] for thousands of people in the New York, Philadelphia, and New Jersey areas. Among the complaints, rail workers noted their efforts during the pandemic by keeping the trains running during a major health crisis without ever seeing a wage increase for their efforts. Per the Politico story [emphasis mine]:
“There has not been a substantial enough recognition of what happened during Covid,” said John Samuelsen, the international president of Transportation Workers of America, which represents 140,000 transportation workers.”
These new strikes come on the heels of a summer of strikes including Hollywood actors and writers, nurses and doctors, and professors in the same northeast region, along with new threats from New York City school bus drivers. When so many groups are threatening strikes at the same time, it is easy to see how the inability of wages to keep up with the last round of inflation has affected many people across the country.
Mark my words, ladies and gentlemen; we are at the beginning of what will be a nasty and protracted period of inflation stemming from the massive amount of money printing that occurred in 2020 due to the pandemic. This is far from over.
Executive Summary
Gold and silver prices are holding steady largely because the economy has several layers of issues that it needs to resolve. Primarily, monetary creation and declining economic growth have led us into stagflation. Gold and silver don’t typically react strongly to such environments, though prices have stood fast during the summer months which are typically not as king to PM investors. Wait until inflation returns and massive worker anger arises, as a result of weakening economic conditions and declining wage and job creation rates. We are just getting started on what will be a nasty recession for the next few years.
The economic data isn’t good, with only a few positive ‘green shoots’ of activity holding up an economy that looks like it is fast marching to the edge of a scary and deep cliff. Corporations are failing, quality jobs are hard to find, inflation-adjusted wages are falling, and GDP growth is quickly slowing. This is the first stage of a multi-stage, worldwide recession that is going to hit hard and fast. You are reading it here first.
Workers are striking and threatening to take down vital services. This will get worse before it gets better. Now is a great time to get precious metals before these brewing situations hit the mainstream media and drive up demand for the metals.
Coin of the Week
This week I like the 1 oz Valcambi gold bars which are both gorgeous and well-recognized in the market.
