Let’s start first with the last word of our title: “recession”. If you do the math and/or are a regular reader of The Gold Update, you well understand that the U.S. Gross Domestic Product ex-inflation has just recorded its fourth consecutive quarter of contraction. Or inflation included as is the standardized measure, a second consecutive quarter of contraction has just been recorded, which, by a long-standing saying, establishes that a recession is in effect, six months after the fact.
This second consecutive quarter of contraction being clearly expected given that our economic barometer is in full swing – towards the rescue of the face – the StateSide government, the investment banks and FinMedia have circumvented
Thursday’s Q2 GDP report of -0.9% redefining if not outright denying
“recession”. Here are a few picks from those high-level reflections:
■ “We are not going to be in a recession”US President Joseph Robinette Biden Jr., July 25;
■ “We are not in this recession-type scenario yet”Elyse Ausenbaugh, JPM, July 28;
■ “Are we in a recession? Yes. No. Maybe.Allison Morrow, CNN, July 29. REALLY?
Not only is the recession underway, but based on the barometer above, the underlying economic base in Q2 was weaker than in Q1. But since GDP is not so much calculated using specific parameters as it is a “toss to the side of the barn” summation for a quarter’s worth of goods and services, the GDP refutes the depth of current reality. And as the chart clearly shows, Wall Street as measured by the S&P 500 (red line) obviously sides with the “softer” The contraction of GDP accompanied by the “redefine” of recession rather than with the truth of the economy at half mast (blue line).
Indeed, we often wonder if the six-figure people in the banks do any honest economic analysis. The optics is that they do not, choosing instead to bask in what they see on television. (Easy money if you can dumb yourself down enough to get the job). Whereas here we have since emphasized month that the US economy has shrunk (simply because we’re doing the math), while much of the rest of the band would rather swim in the Nile. (“Of course, any threat to their fee income is verboten!)
And as for the current second-quarter earnings season, the S&P 500 is on track to record its sixth-worst quarter (year-over-year comparison) in at least the past 21 quarters: that’s why the “live” P/E is a lofty 33.3x…which, ironically, is 33% higher than the lifetime average price/earnings ratio of 22.3x. “Bear” Also bear in mind in this S&P “correction” that the 3600-3200 structural support has not yet been tested.
“But hmm, Everybodythat is to say that the bottom is inside…”
And let them say it, Squire, because without “everyone,” there’s no one to take the other side of the trade.
As for the latent entry of the price of gold into the economic recession, it was a robust week for the yellow metal. With +18 points in price premium (as volume moved from August contract to December contract), gold recorded a net weekly gain
of +3.3% (+53 points). Percentage — even without the added premium — ‘it was gold’s best weekly gain since the one that ended on March 04. Also, the price is ultimately Knock on the red dot door to reverse the weekly parabolic trend from short to long:
And while we’ve been very lucky with a few short-term calls (suggesting the precise 1678 low two weeks ahead and then a week ago suggesting the precise 1785 high from last week as a target to short-term), we remain far from the base to reach our high of 2254 expected for this year, although our short-term objective “Hello 1800!” seems likely to unfold. Gold stabilizing yesterday (Friday) at 1783 means a jump from here of +26% is needed in just five months (107 trading days) to reach the target of 2254. Such a rise percentage in the same time frame happened in 2005, 2006, 2007, 2008, 2009, 2011 and 2020, just in case you score at home. (Yeah, we know, the “M Word” crowd
will be there to smother it, lest they themselves be smothered as monetary faith dissipates: history really does want to repeat itself).
Meanwhile, year over year, we also go for gold with many of its key equity metrics. While all of their percentage leads are negative, the troops are now trying to turn the corner, even though since this time a year ago we have gold itself -2%, Franco-Nevada (FNV) -20 %, the VanEck Vectors Gold Miners index listed fund (GDX) -25%, Newmont (NEM) and Pan American Silver (PAAS) -28% each, Agnico Eagle Mines (AEM) -34% and the index listed fund Global X Silver Miners (SIL) – 38%. Up or down, you can really see the leverage of stocks on gold here:
As brutally low as the price of gold remains (1783 today against the dashboard valuation of 4021), the yellow metal still has a place on the podium as we will see next in the percentage performance since the beginning of the year from the BEGOS markets, with Big Oil remaining the Big Winner. And is not said that the last place Copper so-called tracks the economy, (hint-hint, nudge, wink)?
Regarding their last 21 trading days (one month), here we circle the horn for each BEGOS component with its respective gray linear regression trend line and sky blue dots of consistency to this one. Gold’s Friday bar gap is indicative of the +18 point price premium, with December replacing August for the “month before”:
Precious Metals 10-Day Market Profiles Reveal Surging Upside Prices, Gold to the left spanning from the 1740s to the 1780s and Silver on the right climbing a full point from 19 to settle above 20 for the first time since June 30. Indeed, Sister Silver’s gain for the week was +10%, in turn causing the Gold/Silver ratio to drop from 93.3x to 87.7x, still well above the century-to-date average of 66.9x, (by which prices measure Sister Silver at 26.65 rather than its lowly 20.34):
Also, since it’s the end of the month, here we have the structure of gold by monthly bars over the last 11 years. (Caution is advised when reviewing this table, as reliving The Northern Front over and over again can cause both a headache and a thigh rash):
At least Gold got our call back for 1785, (which isn’t saying much); however, as was also written a week ago “…what had been Gold’s support zone from 1854-1779 is reflected in the resistance zone from 1779-1854…” So, from there, it will be the battle of the fundamental thrust against the “M Word “the crowd is ready to keep Gold on their backs. Pretty confusing stuff, just like these last three
■ There is broad consensus that the Federal Reserve will continue to aggressively raise rates during the recession to return to a rate cut by 2023. Our recommendation is to take the green route to save fragile supply energy from the planet by simply shutting down the Eccles Build for a year given that it’s here, the Fed would ultimately direct otherwise.
■ Dow Jones Newswires last week reported that “Wealthy Americans continue to borrow, defying the economic gloom.” This fits well with Squire’s note
earlier than “…everyone says the bottom is in…” Be aware of massive margin calls when things go wrong.
■ In this regard, the International Monetary Fund has again revised downwards its forecasts for global growth; (we’re assuming it’s ex-StateSide, it’s already well into a shrinking state). The IMF also covered her behind warning of even worse results. Add to that more broadly the Congressional Budget Office’s expectation of rising budget deficits, in turn leading to much higher levels of debt over the next 30 years. (That’s a heckova crystal ball over there). By the way, when does Uncle Sam’s first flaw occur?
Either way, the dominoes stand ready for their ravaging chain reaction: a still vastly overvalued S&P in a better-yielding debt environment, a dollar that’s worth more because there’s more of it, more and more debt. by the CBO (which contradicts the bond argument), the Fed increasing even more in the recession, and “ooh ooh a COVID-22 assault”? The mutation of 3Ds (Dlowering, Ddebt, Dderivatives) always emphasizes the 3gs: gOld, gold and gOld!
Disclaimer: The opinions expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. This is not a solicitation to trade commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article accept no responsibility for loss and/or damage resulting from the use of this publication.