Gold leads the way
Last week we wrote about the gold to silver ratio. Our points were that it measures the price of one metal against the other, just as we use the dollars per ounce to measure daily metals prices, and just as we use ounces per Corvette to measure purchasing power preservation.
Also, we discussed the range of movement that silver has around gold over the past fifty years. We laid out notes for when to buy silver against gold, and when not to.
The Long Run Relationship Between Gold and Silver
Today we expand on the gold to silver relationship. Traditionally, gold moves first, with silver following but moving relatively more.
Since the 1970s, in all the big price moves studied, we find that although silver goes farther, gold leads the way by moving first.
This is so important because it means that silver investors can typically get a free look at the future before they need to commit money. It also shows that gold and silver respond slightly different to the same global events.
The two metals response to Covid-19 in 2020 is a great example of the gold price jumped higher prior to the move in silver.
2020 started as a normal year. In March the world began to fall apart because Covid-19 was spreading rapidly everywhere, there was no cure and little understanding of the related science.
Governments around the globe closed their economies as much as possible with the aim of preventing spread from one human to another. By early June 2020 governments made clear to everyone that they will replace lost income or wages or rent with money from the government. That message was everywhere!
Silver Set to Follow Gold
Gold got the message before silver. In fact, from June until August 2020 gold ran from US$1685 up to US$2065 per ounce. Gold investors quickly understood that governments did not have enough cash on hand to make all these income replacement payments, so more debt and more printing was coming.
Gold rallied more than 20% over this time period. But silver did nothing for over a week in early June while gold was running.
Why? Because silver is more tied to industrial production and GDP figures than gold is, so for over a week silver was trapped by the fear that maybe buying more silver because of new government debts and money printing would be a bad idea since the closed economy meant drops in physical silver demand for industrial use.
Silver roared to the party once gold moved far enough to show the new path was up. Silver moved more than 65% versus just 20% for gold!
Starting at the US $17.40 silver increased to $29.13 in those same 2 months despite waiting more than a week to get started.
To recap Q3 2020: gold moved first, silver moved second, gold went up 20%, but silver went up more than three times that!
It turns out that this pattern of events in 2020 is not unusual. If you study all the 20% price increases for silver and gold since 1975 the results are striking. On 85 different occasions, two metals rallied more than 20% in tandem.
On 60 of those 85 occasions, gold led silver by 3 days! Gold was moving up for 3 days before silver even moved at all. After adding up all the 85 occurrences and making some observations about the average. We see that a price move that pushed gold up 20% will mean that silver, on average moves up 39%.
Or double the percent increase of gold! Silver has been called the poor man’s gold because it is priced less per ounce, moves farther per ounce, and moves second. The lesson this week is to pay special attention when the gold price starts an up move, and silver just sits.
The likelihood that silver will begin to rise after gold is high. So, if gold is up four days running while silver sits. The math above hints that silver is planning to get itself caught up to gold’s rally and maybe even blow past it to run farther.
From the Trading Desk
***Silver coins for Ireland – Delivery and Storage at new lower premiums****
Silver coins are now available for delivery or storage with the lowest premium in the market.
Starting as low as spot plus 30% for Silver Britannia’s & Silver Philharmonics starting at 32%.
Silver Britannia’s for UK delivery or storage are still available at the lowest premium in the market also (which includes VAT at 20%).
These can now be purchased online.
We have also recently added Gold 250 Gram & 500 Gram bars. These are available for storage and delivery starting at spot plus 3.2% for the 250-gram bars & 3.1% for the 500-gram bars.
Excellent stock and availability on all gold coins and bars with 1oz bars at a very competitive 3.75% over Spot.
Krugerrand are currently the lowest premium on 1oz coins at Spot plus 5.5%. Gold Britannia’s 1oz Coins start at 6.5% over the spot.
Silver 100oz and 1000oz bars are also available VAT-free in Zurich starting at 8% for the 1000oz bars and 17.5% for the 100oz bars.
Please see below our extended trading hours.
** We have extended our opening hours. Phone lines, online ordering and WebChat are now open until 09:00-22:00 (Europe/Dublin) USA 09:00 to 17:00 EST**
We had the US non farm payroll numbers last Friday, a huge miss with 235,000 jobs created versus 720,000 expected.
Gold rallied over its 200-day moving average and closed out the week at $1827.
However, gold has been under a little pressure this week and we are back just below $1800 again due to a stronger USD and by the continues, Fed tapering woes and virus led economic fears.
Dallas Federal Reserve Bank President preferring to taper as soon as possible, even making a case for as soon as October.
The ECB meeting takes place today, it’s expected the ECB will dial back the Pandemic Emergency Purchase Programme (PEPP) but it will be more the comments that come from the ECB in regards to the EU economic performance and any scope for tightening of monetary policy that will be looking for.
GOLD PRICES (USD, GBP & EUR – AM/ PM LBMA Fix)
08-09-2021 1797.95 1786.00 1306.57 1297.53 1521.25 1511.49
07-09-2021 1810.75 1802.15 1310.26 1307.10 1525.01 1520.65
06-09-2021 1823.85 1821.60 1318.10 1317.02 1538.05 1535.06
03-09-2021 1812.05 1823.70 1309.39 1316.53 1526.11 1534.46
02-09-2021 1815.15 1812.55 1316.53 1311.74 1532.17 1528.52
01-09-2021 1813.90 1811.80 1318.89 1314.82 1535.10 1530.61
31-08-2021 1814.30 1814.85 1317.18 1316.49 1534.17 1534.82
27-08-2021 1795.50 1798.50 1310.72 1307.15 1527.61 1525.67
26-08-2021 1783.80 1786.60 1298.43 1302.43 1516.23 1520.04
25-08-2021 1794.70 1788.70 1307.80 1303.60 1527.29 1521.83
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Contact Gold hits gold mineralization in the Pilot Shale
Contact Gold (C.V) has released the assay results from additional holes drilled on the Mine Trend portion of its Green Springs gold project in Nevada,…
Contact Gold (C.V) has released the assay results from additional holes drilled on the Mine Trend portion of its Green Springs gold project in Nevada, and the company is pleased it has encountered gold mineralization in the Pilot shale, a layer underneath the more thoroughly explored lower Chainman shale.
The company doesn’t focus on the grade (0.70 g/t Au) nor the width of the interval (16.7 m) as it looks at the gold in the Pilot Shale as a proof of concept as Contact Gold had been theorizing about potentially finding Alligator Ridge style of mineralization as the Alligator Ridge and Pinion gold projects owned by respectively Kinross Gold (KGC, K.TO) and Gold Standard Ventures (GSV.TO, GSV). An additional bonus is the fact this gold interval was encountered in a 900 meter gap in drilling in the mine trend, which means the mineralization remains open along strike to the north and the south, while another drill hole, 55, also encountered some gold in another ‘gap’ in between two past producing pits at Green Springs.
So rather than focusing on the assay results, the drill results should be interpreted as part of a bigger picture where the first drill test beneath the mine trend did indeed encounter gold. In his comment in the press release, CEO Lennox-King mentions he is looking forward to follow up on all four discoveries made this year (the two deeper Pilot Shale holes in the recent announcement as well as the Tango and X-Ray targets discovered earlier this year) in the fourth quarter but the company will require new funding to do so.
Disclosure: The author has a long position in Contact Gold. Contact is a sponsor of the website. Please read our disclaimer.
US indices close week mixed, weighed down by tech stocks
Benchmark US indices closed the trading week mixed on Friday September 24 pulled down by losses in technology and healthcare sectors amid mixed global…
Benchmark US indices closed the trading week mixed on Friday, September 24, pulled down by losses in technology and healthcare sectors amid mixed global cues.
The S&P 500 was up 0.15% to 4,455.48. The Dow Jones rose 0.10% to 34,798.00. The NASDAQ Composite fell 0.03% to 15,047.70, and the small-cap Russell 2000 was down 0.49% to 2,248.07.
Global markets remained volatile this week amid mixed cues. US stocks wavered after news that Chinese real estate giant Evergrande Group was on the brink of a major default.
Its US$300 billion debt bomb has sent shockwaves across the global markets. On Thursday, it entered a 30-day grace period after missing an interest payment deadline.
The Fed's sooner-than-expected timeline for stimulus tapering also weighed on investors' minds. The central bank said this week that it is considering withdrawing its bond-buying program by November. Consequently, an interest rate hike may be imminent.
Separately, the Biden administration is also planning to increase the corporate tax. It is currently debating a spending bill, which is expected to outline the program.
On Friday, the energy and financial stocks were the top gainers on S&P 500 index. Real estate and healthcare stocks were the bottom movers. Six of the 11 index segments stayed in the green.
Shares of Nike, Inc (NKE) fell 6.17% after it lowered its sales forecast. The company said it is facing challenges to meet the demand for shoes and athlete wear due to delays in production and shipping. Nevertheless, its revenue jumped 16% YoY to US$12.2 billion in Q1, FY22.
Meredith Corporation (MDP) stock rose 25.27 percent after news that the magazine publisher is in advanced talks for its purchase by media and internet holding company IAC/InterActiveCorp.
In the healthcare sector, Moderna Inc. (MRNA) fell 4.65%, Dexcom Inc. (DXCM) shed 2.25%, and Waters Corporation (WAT) fell 1.78%. Resmed Inc. (RMD) and Boston Scientific Corporation (BSX) ticked down 1.37% and 1.06%, respectively.
In technology stocks, Enphase Energy Inc (ENPH) declined 3.04%, NVIDIA Corp (NVDA) fell 1.89%, and Adobe Inc. (ADBE) declined 1.48%. Accenture plc (ACN) shed 1.20%, and Salesforce.com Inc. (CRM) gained 2.47%.
In the energy sector, ConocoPhillips (COP) rose 2.43%, EOG Resources Inc. (EOG) gained 2.45%, and Baker Hughes Co (BKR) gained 1.25%. Hess Corporation (HES) and Pioneer Natural Resources Company (PXD) advanced 1.10 and 3.21%, respectively.
In the crypto market, prices tumbled after the Central Bank of China declared crypto transactions illegal. Bitcoin (BTC) fell 5.49%, Ethereum (ETH) fell 7.74%, and Dogecoin (DOGE) declined 6.82%.
Futures & Commodities
Gold futures were up 0.03% to US$1,750.40 per ounce. Silver decreased by 1.21% to US$22.405 per ounce, while copper rose 1.20% to US$4.2817.
Brent oil futures increased by 1.04% to US$78.05 per barrel and WTI crude was up 0.93% to US$73.98.
Also Read: In the Spotlight: Top 50 US startups in 2021
The 30-year Treasury bond yields was up 3.15% to 1.985, while the 10-year bond yields rose 3.02% to 1.453.
US Dollar Futures Index increased by 0.27% to US$93.278.
Your cash will lose at least 5% of its purchasing power in the next year
Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next…
Earlier this week, Fed Chair Jerome Powell announced that the real yield on dollar cash and cash equivalents is likely to be -5% or less over the next 12 months. Yes, your cash balances will lose at least 5% of their purchasing power over the next year, and that's virtually guaranteed. So what are you—and others—going to do about it?
Assumptions: This forecast of mine optimistically assumes that 1) the first Fed rate hike of 25 bps comes, as the market now expects, about a year from now, and 2) the rate of inflation slows over the next 12 months to 5% from its year-to-date rate of 5.9%. Personally, I think inflation next year likely will be higher, if only because of the delayed effect of soaring home prices on Owner's Equivalent Rent (about one-third of the CPI), the recent end of the eviction moratorium on rents, and the continued, unprecedented expansion of the M2 money supply.
I'm a supply-sider, and that means I believe in the power of incentives. Tax something less and you will get more of it. Tax something more and you will get less of it. Erode the value of the dollar at a 5% annual rate and people will almost certainly want to hold fewer dollars than they do today.
I'm also a monetarist, and that means I believe that if the supply of dollars (e.g., M2) increases by more than the demand for dollars, higher inflation will be the result. We've already seen this play out over the past year: the M2 money supply has grown by more than 25% (by far an all-time record) and inflation has accelerated from less than 2% to 6-8%. Massive fiscal deficits have played an important role in this, but so has an accommodative Fed. Between the Fed and the banking system, 3 to 4 trillion dollars of extra cash were created over the past 18 months. At first that was necessary to supply the huge demand for cash the followed in the wake of the Covid shutdowns. But now that things are returning to normal, people don't need or want that much cash. Yet the Fed continues to expand its balance sheet, and they won't finish "tapering" their purchases of notes and bonds until the middle of next year. That means that there will be trillions of dollars of cash sitting in retail bank accounts (checking, demand deposits and savings accounts) that people will be trying to unload.
If we're lucky, the inept and feckless Biden administration will be unable to pass its $1.5 trillion infrastructure and $3.5 trillion reconciliation bills in the next several weeks. This will lessen the pressure on the Fed to remain accommodative, but it's not clear at all whether it will encourage the Fed to reverse course before we have a huge inflation problem on our hands. Non-supply-siders (like Powell) view an additional $5 trillion of deficit-financed spending as an unalloyed stimulus for the economy. Supply-siders view it as a virtually guaranteed way to increase government control over the economy and thereby destroy growth incentives and productivity.
Amidst all this potential gloom, there are some very encouraging signs, believe it or not. Chief among them: household net worth has soared to a new high in nominal, real, and per capita terms. Also, believe it or not, the soaring federal debt has not outpaced the rise in the wealth of the private sector. See the following charts for more details:
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