Gold and silver are entering the summer doldrums, so they are likely to fade as the summer goes on. This is normal. I always considered this time of year a blessing, and not only for the good weather. I love the time because I can step back and look at what has happened. I can also take plenty of time to do more research, re-arrange my portfolio of investments, and make decisions on the future. And I can do it when gold and silver are unlikely to move strongly in either direction for the next couple of months. You cannot do that in all investment classes, but we can in gold and silver.
Gold and Silver Analysis
The foregoing may not seem like a blessing, but more like a curse to most people. The reality is; however, that investments never move in a straight line. It is the peaks and valleys that offer all the excitement, whether it be a big boom that impacts your savings in a way you were not expecting, or a big crash that devastates your investments and leaves you pondering your future as a cashier in your local Walmart. No offense to Walmart, as I shop there quite often.
Though the peaks and valleys get all the press, it is the quiet times that I appreciate the most. I appreciate them because it gives me time to pause, reflect, and make better choices. Or simply to confirm my current investment thesis. Not all markets (read: forex) allow for ample time to reflect, but the precious metals market gives us that opportunity once every year. I consider that a blessing.
The above chart provides us with a technical indicator called “accumulation/distribution”. The role of this indicator is to show the trend line of both price and volume to determine whether traders are in a buying or a selling trend. Clearly, gold is still in an accumulation phase, despite recent softness in price. Price on its own does not show how convicted traders are; volume must also be considered. Despite the seasonal weakness coming for gold during the summer months, the charts are very healthy heading into the warm months which is a good sign.
Likely the market is expecting a much bigger jump in gold in the fall, as I am. Commodities markets experience amnesia in the summer; but memories return when the leaves begin to change in the fall. And that is when I expect both gold and silver to continue their bull march. By this time next year, I think we are talking about the impact that new all-time highs in gold are having not only on the precious metals markets, but the broader mix of commodities that do well when gold does.
The Macro View
The housing market has gotten frisky in the past week. The home builder confidence index surged 4 points to 55 and looks positively bullish. Housing starts increased 300k to 1.63 million this month, which is another positive sign. Existing home sales held steady at 4.3 million.
I do not expect this is a turnaround in the long-term housing market, but more a sign that the American economy is still looking for growth. We will not win that battle when the debt comes due, but there is still a lot of fight in the economy despite its current problems.
I am monitoring the speeches of the international financiers and economists through their public appearances, speeches, and publications. Most of them are aware of the current economic issues, but they are blaming the wrong problems. A recent speech from the IMF had the opinion that wage growth is one of the major factors in causing inflation. Which is, of course, completely off-base. But blaming workers for inflation has long been the trope of central planners who believe they can run the economy from a desk and computer.
The reality is that wage growth is a factor of monetary distribution in society. Right now, a lot less of that money is hitting wages, which are growing much slower than inflation in prices for things such as food. The money is printed and spent LONG before any of it hits employee paychecks.
Blaming wage earners while their purchasing power falls precipitously is both wrong and extremely tone deaf. This will not endear economists to the public, who are really suffering to make ends meet. The bureaucracy of government economists and policy makers all likely have the same view. Expect wage and price controls to be the next step of government intervention when it becomes clear that existing economic policy, the current driver of inflation, continues to flounder and increase the public’s pain.
Story of the Week
South Koreans now have access to gold in convenience stores via vending machines. That’s right, you can buy gold as easy as you do soft drinks in Korea. And what is more interesting are the ages of the main customers – they are millennials! The company providing them is expanding from 29 machines to 50 by the end of the year.
The story notes what is being sold and who is buying the bars.
“The most popular gold bar is the smallest, the 0.13-ounce one, which is currently priced at around $225,” a GS Retail representative told UPI News Korea. People in their 20s and 30s appear to be the main buyers, purchasing physical gold as an investment vehicle, especially in times such as these, when its value is continuing to rise,” he said.
Buyers in Korea are reacting to the banking problems in the US. “Niggling inflation and the SVB crisis seem to have caused more people to be interested in anti-inflationary assets such as gold,” Inha University Professor Lee Eun-hee said in a phone interview.
So it appears as though Bitcoin and the cryptos don’t hold absolute sway over the younger generation. Gold still has its place and is making a comeback. This is one of many reasons why I believe gold will not have an extended swoon this summer. There is too much interest popping up around the world in unexpected places and in unexpected people. Well, unexpected if you didn’t understand history as we do…
Executive Summary
Gold and silver are likely to hit their summer swoon, but I do not think it will be as bad this year. Technical indicators show that gold has momentum heading into the summer which should keep it frothy. The physical demand popping up around the world along with the renewed interest in the younger generation are both very positive signs that bull is still in a major bull market.
The macro picture is still very cloudy. While international economists blame wage earners for inflation, the reality is that the debt and monetary policies have bogged down economies which are struggling to keep growing. Americans have not given up on growth, though likely we will lose the battle and enter recession by end of this year. And that recession will not be a short, nor an easy one.
Coin of the Week
In celebration of South Korea opening up gold vending machines with gram-sized gold, I am recommending gram gold for you as well. It is more affordable for most people to buy in smaller sizes. And while premiums are more expensive, I believe it is important to own gold no matter your budget. So these sizes can help get you started. And you can get them without having to make the plane trip overseas, though buying gold out of a vending machine may be the perfect excuse for a vacation! We just must get the wives to agree first.
