Time to see if gold & silver can shine.
It’s hard to get a better set-up than we have right now.
The events calendar is light this week, and it actually favors gold & silver.
Or better said, stagflation data.
We get the Producer Price Index on Wednesday and the Consumer Price Index on Thursday.
The PPI measures what producers pay for the items they use to produce their goods. It will be interesting to see how the trade wars are now affecting producer costs.
For example, just how much has the cost of steel and aluminum gone up in price?
Furthermore, what will the producers do in the face of rising costs?
Let’s talk about a soda pop for a second.
If the cans are more expensive (either manufactured by the soda pop company or sourced already fabricated in a can) because of the aluminum price increases, will the company just take the loss in profit (if there is a profit) or will the company pass on the higher costs to the consumer?
These are very real decisions that companies will make, and since businesses operate in a “just in time” inventory system, meaning the soda pop company doesn’t have tons and tons of aluminum stockpiled somewhere, but rather, it is constantly ordering aluminum with the fluctuations in demand for the soda.
And just like the producers begin making decisions about whether to charge more to their customers, or whether to eat those costs and make less profit, we’ll know soon enough in the CPI, because that is a measure of prices the customer pays.
So where the producer of soda pop is concerned about the cost of aluminum, sugar, water, etc, the consumer just wants to know how much a can of soda costs.
What does this have to do with gold & silver?
Two words: Inflation hedge.
You see, dollars sitting in a bank account or a savings account lose purchasing power with each passing month.
In some countries, like Argentina and Venezuela, fiat currency in the bank or even cash in the wallet can lose purchasing power with each passing day.
That is where gold & silver come in as a hedges against inflation.
By converting dollars into gold, or silver, that purchasing power is maintained because the metals rise in price, and they can be sold later at a higher price.
Yeah, “But Half Dollar, gold and silver only go down in price”.
Not over long periods.
Sure, during the last seven years its been brutal, but what about the last twenty?
Not bad at all.
Besides, since the cartel price suppression has been very brutal, especially this year, not only do gold and silver step up into their roles as inflation hedges, but they also can see capital gains in a rise in price above the rate of inflation as a way of catching back up to their fair values.
So it’s hard to go wrong with gold and silver, especially right now.
Which is why I think it’s time for gold and silver to shine.
So let’s dive in and see where things stand for the week.
We all know what happens when the 50-day moving average crosses the 200-day moving average.
It can be good news or bad news depending on which way you want an asset moving.
Or in the case of the gold to silver ratio, which one you want to outperform.
That said, the 50-day moving average on the GSR is about to cross the 200-day:
This means that silver is about to start outperforming gold at an even faster rate.
Which is something we want to see.
And if we are going to rally this week, then silver will finally be outperforming gold for the right reasons.
We can see that since the markets opened last night, it’s been strength overnight and into the morning:
So gold and silver are off to a good start of the week.
Gold does look like it has turned the corner here:
Going back one year, notice on the gold chart how the rally was strong and ultimately ran up to test the $1350s.
But also notice something about that run – we started it from $1200.
If we are going to rally this week, which I think we are, well, we’re starting from above $1250 (actually above $1260).
And where would $150 from here put us?
So we’ll see.
Like I said, gold & silver need to shine here, and gold blowing past the $1377 (June, 2016) highs is what gold needs to do to show us it can shine.
Now, I’m not saying we get there this week.
But, those who are new to gold and silver might not know that gold and silver can have strong surges, and a $75 to $100 move in a day is not far fetched.
Now, I don’t think we are at that point, at least not this week, but grinding higher would be what we want to see.
The Ideal would be a set-up to challenge $1350 next week, but I’d settle for putting in a close above $1300, which isn’t that much to ask at all.
A close above $1325 would get us set-up to challenge $1350 in a hurry.
I’ve put the sideways channel of pure agony back on the silver chart:
For performance in silver, we need to close out the week above the channel.
That would be approximately a 3.7% move on the week.
That’s not too much to ask either.
That would set us up to challenge $17 next week.
I still think that once we get above $17.50, we’ll be above $18 within a few days.
To recap: Gold & silver need to show strength coming off of these bottoms, and we need a strong close on Friday.
A failure to rally here is going to crush sentiment as all the gold & silver bulls are very bullish, and a break-down would be devastating.
I think we’re going higher though.
And two reasons explained later on support that statement (crude oil and the dollar).
Palladium has held on after consolidating:
Let’s look for palladium to at least get above its 50-day moving average, but if we really want palladium to shine, it would break-out above its 200-day as well to close out the week.
Even platinum looks like it is turning the corner here:
Recall that is a multi-year low on the platinum chart, and we’ve had a series of eight lower-highs and eight lower-lows, so I’m not even going to come with a price target right now.
Getting above the most recent lower-high is critical, but that means a slight pullback would be on deck in order to put in the next higher-low.
But with platinum especially, it’s baby steps.
Crude oil is consolidating here:
Call it a consolidation right around $74.
But look at the far left side of that chart – crude oil was still in the low $40s.
See why I was talking so much about inflation at the beginning of the outlook?
From $43 to $74 is a percentage increase of over 70%, in just the last year.
Which is another reason why there’s just not much downside in gold & silver.
It takes a lot of crude oil in the form of diesel to get precious metals out of the ground, and the cost of crude oil is up 70% from last year, yet gold is up barely 4% from last summer and silver is up 7%.
Just something to think about.
Copper looks like it has stopped bleeding:
Copper will be interesting to watch from the trade war angle, in addition as being a broad measure of the health of the economy in general.
That’s why they call it Dr Copper.
The cartel sure has lulled the markets back into a trance of peace and tranquility:
When I look at the VIX I think back to the movie Titanic, where the string band is playing on the deck, a peaceful melody, and chaos ensues all around them.
Well, guess what?
Here’s the Titanic:
Go back to your cabins!
Life boats made of gold & silver?
Who needs those?
Besides, if anybody is concerned, we have life jackets in the form of U.S. Bonds:
Not keeping up with the real rate of inflation, however, means that it doesn’t matter if you’re wearing life jackets or not, because you will still freeze to death in the frigid waters.
And that’s assuming the life jackets work.
What if they are defective, as in the government defaults?
Sure, not any time soon, but down the line, the likely scenario is not a default but inflating the debt away.
But I digress, enough of the Titanic analogy.
We know the economy is the Titanic, and we know it sinks.
There is no saving it.
The dollar looks like it could be rolling over here:
If the dollar is rolling over here, just like with crude oil, that will help provide the needed boost to gold & silver.
In summary, now is the time for gold and silver to shine.
Inflation, the price of crude oil, and the dollar rolling over provide the elbow grease to bring back that luster.
Let’s grab some popcorn and watch it happen.
The iShares Silver Trust ETF (SLV) was unchanged in premarket trading Wednesday. Year-to-date, SLV has declined -5.44%, versus a 4.93% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Silver Doctors.