SD Midweek: There is a strong case to be made that gold and silver won’t stay at these low prices for much longer. Here are the details…
A major theme that has come roaring back this week is the trade war.
In the alternative media, the premise goes like this: China is devaluing the yuan to counter the effects of the tariffs in the trade war. By devaluing their yuan, what the Chinese are doing is making their exports cheaper in dollar terms, so on net, assuming the yuan is devalued by the same percentage as the tariffs (the yuan has been devalued nearly but not quite 10%), the net result is the same as the cheaper yuan offsets the higher cost for the goods because of the tariffs.
There is just one problem with the premise, because recently and prior to the trade war, we have been here before.
If fact, the yuan is still not quite at a multi-year low (USDCNY shows how many yuan you get per dollar, which is why it goes up on the chart) :
The yuan was weaker against the dollar at the end of 2016 than the yuan is now.
Since the prior peak in mid-December, 2016, the yuan was getting stronger against the dollar, but come April of 2018, when the trade war really started to pick up, that is when the Chinese began to devalue the yuan, and at a rapid pace, corresponding to the ratcheting up of the trade war tariffs by the US.
Here’s the thing to remember about the trade war and the tariffs – they are barely getting started.
Those first round of tariffs didn’t take effect until July, and every time they announce new tariffs, they don’t take effect immediately, but rather, there is some time that goes by before they become effective. For example, on Monday, the US announced the latest round of Tariffs against China, and China responded with some new tariffs of their own, but the latest round is not effective until the 24th of this month. In other words, the trade war is incremental in nature – a ratcheting here, a damage assessment there, a ratcheting there, another damage assessment.
If you look to the US stock market, it thinks the US is winning the trade war, and if you believe what President Trump says about it, you’d think we are winning too.
For example, it’s the tariffs “for the win” all the way around:
Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”
— Donald J. Trump (@realDonaldTrump) September 17, 2018
But for every announcement about something an American business seems to be full of win about, there seems to be a dozen other announcements from American businesses to the contrary.
Case in point. Here is something President Trump is boasting about from just on Monday:
Our Steel Industry is the talk of the World. It has been given new life, and is thriving. Billions of Dollars is being spent on new plants all around the country!
— Donald J. Trump (@realDonaldTrump) September 17, 2018
“New life”, “thriving”, and “billions of dollars spent on new plants” all around.
Sounds great, right?
Well, here’s a nifty article highlighting 202 different businesses discussing the impact of the tariffs, in their own words, from the businesses themselves, and several businesses featured have some stake in the steel industry.
Here’s an honest question: If the steel industry is “thriving”, with “new life”, and “billions” are being spent on plant and equipment, then why are manufacturers that depend on steel absolutely suffering?
Don’t take my word for it, see for yourself with some examples from the article (bold for emphasis, red bold italics for extra emphasis):
- American Keg: The Pennsylvania stainless-steel beer keg manufacturer was forced to lay off 10 of its 30 employees because of tariff-induced costs. It has passed on some of the costs through higher prices, leading some customers to switch to foreign vendors. “We have a lot of patriotic customers that want to buy USA-made kegs with U.S. labor and U.S. steel,” the company’s CEO says, “but they’re only going to go so far as that price difference continues to rise.”
- Batesville Tool & Die: The Indiana company may be forced to shift some production to a plant in Mexico in response to higher steel prices caused by tariffs.
- General Motors: The carmaker, which cut its earnings forecast for the year because of surging prices for steel and aluminum caused by tariffs, is considering cutting U.S. jobs.
- Independent Can Company: The Maryland cannery can’t afford to pay higher prices for the steel it imports from Germany, and it can’t get the steel it needs from domestic producers because U.S. Steel doesn’t make steel coils that are big enough to meet its needs, and the quality is not good enough. Its customers have bailed as a result of supply problems.
- Insteel Industries: The North Carolina concrete reinforcement maker says its customers are turning to foreign imports to find cheaper prices.
- Laitram: The Louisiana conveyer belt manufacturer has been put at competitive disadvantage with its foreign peers because tariffs have increased its steel prices by 12 percent to 14 percent. It is downshifting and delaying investments, falling behind its competitors, and hurting its suppliers and their suppliers.
- M&B Metal Products Co.: The company may abandon plans to upgrade its factory near Birmingham, Alabama, which fashions steel wire into clothing hangers sold to dry cleaners and uniform-rental firms, because of tariff costs.
- Martin’s Steel: The Pennsylvania steel manufacturer, which has seen the cost of aluminum rise by 45 percent and steel by 30 percent, has had to increase prices, hurting its customers.
- Mid-Continental Nail: Missouri nail manufacturer has laid off 60 of its 500 workers because of increased steel costs from tariffs. The company is in danger of shutting down altogether because tariffs eliminate its profit margin.
- Pensmore Reinforcement Technologies: The Michigan company can’t find the quantity and quality of steel it needs in the U.S.
- Qualtek Manufacturing: The Colorado precision metal parts maker is considering scrapping plans to hire 14 employees because tariff-induced steel and aluminum price hikes have increased the cost of company’s key products by $300,000. Its customers may divert business to foreign rivals with access to cheaper steel.
- Seneca Foods: The New York food processor needs steel from China to make fruit and vegetable cans because the domestic supply is insufficient and of lower quality.
- Stripmatic Products: The Ohio metal parts maker scrapped plans to hire new workers and may have to lay off current employees and reduce bonuses because of tariff-induced increases in steel costs. Its customers may seek a cheaper, non-American alternative.
That is not even all of the businesses in the steel industry featured in the article. That is just a sampling.
I ask the question again, because it is important: Does this sound like a steel industry that has been given “new life”, is “thriving”, and investing “billions” in their businesses?
To me, I see:
- US businesses saying they are hurting their customers.
- Several manufacturers saying that US made steel is too low of quality, or that US made steel is not capable of meeting the manufacturer’s needs.
- Stopping plans for investing in plant and equipment (which is exactly the opposite of what everybody thinks will happen with the trade war, but it’s not happening)
- Lay-offs and job losses.
Again, this is just one segment of the US economy, but it is to make a point: From the top, we get one picture, which contributes directly to my Peak Trump theory, but looking at what the actual boots on the ground businesses are saying about the trade war, either all of these businesses (and many, many more) are lying, or else the President is.
Let’s see here: American businesses, who support “business friendly” Trump, and who have seen the best tax cuts, ever, all of the sudden have flip-flopped and are conspiring to lie about the state of the American businesses in the steel industry?
Or could it be that the President is lying about the economy?
I don’t know.
OK, “But Half Dollar, what does the trade war and the tariffs have to do with not being able to keep gold & silver down for much longer?”.
Just like the Fed will hike interest rates until something “breaks”, so to, in my opinion, the trade war will escalate until something “breaks”.
We see a ton of stuff already breaking from the trade war, but in the tightly controlled mainstream narrative, the general population still thinks were winning the trade war. When something breaks because of the trade war, there will be a reversal from escalating tensions to easing tensions. If the analysts who say the Chinese are controlling the price of gold by pegging the yuan to the dollar and then pegging the yuan to gold are right, well, with easing tensions it would only be logical that the yuan would start strengthening against the dollar again, and that, in turn, would allow a rise in the price of gold (and silver).
That said, the trade wars are a major component of Peak Trump, so tensions may not ease for some time.
However, by keeping the yuan weaker against the dollar, and, as the theory goes, by extension, keeping gold and silver on lock-down, the cartel finds itself with a serious problem on its hands. As the stock market keeps rising, as volatility is at peak complacency, and as the bond market is about to be in crisis, more and more investors would naturally start beginning to put on a hedge with gold and silver, and since gold and silver are on lock-down, that hedge might be too large for the cartel to handle at current prices. Not only that, but we have a waking-up of the Western gold and silver bullion investor, so right now it is a double whammy for the cartel, and they are letting gold & silver go for dirt cheap, comparatively and relatively speaking.
If this lasts much longer, they run the real risk of blowing up the paper gold & silver markets, and if that happens, they lose control of the pricing.
The cartel is really in a box here.
And they may be losing their grip on the metals. Just check out the rebound in the other precious and industrial metals yesterday.
We can start with palladium:
That’s a nice move yesterday. Remember we talked about palladium taking out its 200-day moving average?
Even platinum had a nice move higher yesterday:
Remember also talking about platinum taking out its major moving average (the 50-day)?
Copper surged yesterday:
Notice the trend here? Taking out key moving averages.
Crude oil is still hovering around $70 a barrel:
Which means there has been no reprieve in miner’s input costs of crude oil.
And then there are gold & silver.
It’s what we call precious metals price suppression.
It is done by the Exchange Stabilization Fund, the Fed, and the agents of both, who collectively, we call all of those actors the “cartel”.
Let’s start with the gold to silver ratio:
While the other metals surged yesterday, silver fell in price:
That last candle is the overnight/morning session. Yesterday’s candle is the second to last candle on the chart.
Precious metals are surging, industrial metals are surging, and silver is both precious and industrial, and silver is also monetary, yet silver falls in price.
Gold fell in price yesterday too:
Here’s the thing – I have been talking about how the Fed will just keep hiking until something breaks. I just said a little earlier in this post that the trade war will keep escalating until something breaks.
Well guess what?
It seems the cartel is just going to keep gold & silver right where they are until something breaks.
We could see all of this break pretty soon, and I’m talking about the stock market, the trade war, and the tight control on gold & silver.
The stock market has another 420 points or so to go before hitting my call for the top:
Will that be this week or next week?
Or not at all?
With all the market manipulation 24/7, it’s hard to imagine the cartel doesn’t push the Dow to an all-time high just one more time, and since the Fed has their presser at 2:30 p.m. EST next Wednesday, perhaps it will be next week before we see Dow 26669.27?
The VIX has still been very, very helpful:
We are sitting under 13 again.
Moving on to the dollar and the bond market, we see that things are starting to get interesting, which was something I was saying could happen on Monday.
Notice the dollar is starting to look bearish:
Any further drop from here on the dollar index and we will see a clear-cut lower-low on that chart.
Yield on the 10-Year Note also looks ready to test the high put in back in mid-May at 3.11%:
I have been saying yields won’t stay in this sideways channel for long, and that they would either be looking to break-out, or to break-down.
Are we starting to see a break-out?
What we are starting to see in the bond market, and with the dollar for that matter, relating it back to the Dow, is that the Dow really needs to get a move on if it is going to have that surge to new all-time highs.
Bottom Line: The cartel may not be able to keep gold & silver prices capped for much longer.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.