SD Midweek: Gold & silver really need to hold here, but with the dollar, the stock market, and the VIX, it will be difficult. Here’s why…
My family and I went on a small trip in the middle of last week and into this week.
We only traveled a few hundred miles from home, and suffice to say it was pretty uneventful because it wasn’t really a vacation.
It had to do with visiting a sick family member.
I say this because I was out of the loop for several days, and mostly trying to avoid the markets, and any news at all for that matter, with the exception of a tiny peek at the price action here and there.
That said, there are three things relevant to my mini-trip, which, I get it, are very anecdotal in nature, but interesting nonetheless when it comes to economics and the markets.
Therefore, this midweek update will consist of my observations plus the usual charts.
My observations can be broken into these three things:
- Fast food and inflation
- Curiosity in metals
- Markets exactly where I left them
Starting with inflation and fast food.
Again, this is anecdotal, but inflation is all too real, and can be seen very easily in the fast food industry.
First off, when travelling, and looking for one of those places with easy access to the interstate, the whole point is to get your food and keep moving.
You would think.
That said, for my family of four, after taking our order, it literally took more than 20 minutes to receive our food “to go” from the fast food restaurant (this one was a Burger King).
The point here is that somebody either called in sick, or they are running bare minimal staff to help keep labor costs down.
I think it is the latter, because a Burger King with easy access to the interstate should be running like a well oiled machine.
Furthermore, most combos (sandwich, fries, drink) are at least $7.99, and that is with a small fries and small drink.
It used to be for a medium fries and medium drink, but apparently no longer.
Here’s the point – businesses are keeping labor as lean as possible, and raising prices. Since it is unlikely that labor can be further cut (assuming the iPad ordering stations are not installed), there will be additional pressure to raise prices.
OK, “great Half Dollar, you’ve just said something we all know”.
Sorry about that – there is a larger point I want to tie in here, and it is fundamental in nature: Americans take fast food and eating out “whenever” for granted.
If you look at a country like Mexico, for example, eating at a fast food restaurant, or ordering pizza, is only something that would be done on special occasions.
The “take for granted” in Mexico is buying some “tacos de canasta” (tacos somebody is selling, pre-made, out of a large woven basket) on the street.
In my opinion, sooner or later, here too, fast food restaurants will end up being visited only for special occasions.
When it costs over $40 for a family of four to get a meal at a fast food joint, that adds up real quick.
So if you haven’t eaten fast food that much, don’t be surprised at sticker shock when looking at the menu, and when the service is lousy and the time waiting is increasing, understand that is part of the price being paid as well.
Second observation –
Some of my family took an interest in about asking me about silver.
The vibe I got was that there was curiosity in the metal, however, most people are mi-informed.
Here is my point – we talk about “capitulation”, as in “throwing in the towel” on gold & silver. In other words, giving up on the investment. That will take us to a point in time when, as the last person capitulates and all those people who could not hold onto the investment any longer have sold, there will be less sellers in the market and more buyers.
If some of those individuals in my family took their curiosity a step further to investigate on their own, and they theoretically become part of new buyers entering the market, then we could be witnessing the early stages of the whole “if only 1% of the population put just a little money into gold and silver, price would really take off” shift in investment activity.
I mention all of this because after what has happened to gold and silver since 2011, and especially this year, sentiment for gold and silver remains in the gutter, and optimism in real estate and the stock market is still fairly high. Two of the family members who would have had the means to buy a few coins or even make a modest investment were either involved in real estate (home appraisals) or the stock market (older relative with lifetime savings).
As the real estate and the stock market turn, in my opinion, those on the fence, as in my curious family members, could be compelled to actually act.
For now, complacency remains supreme, and real estate and the stock market can only go up, or so goes the general consensus.
Again, this is anecdotal, but it goes to show that your run of the mill, middle class investor, while still bullish on real estate and the stock market, is beginning to think of “protecting one’s wealth”, and that didn’t include “going into cash” as all the hedge fund guys like to say, but moving some of their investments into gold and silver. And these are individuals who own no gold or silver.
Notice the turn in the making?
In my experience, we can see that the combination of the last investor who, for whatever reason, no longer wishes to be in the metals is throwing in the towel, right at the same time others who have never invested in gold and silver are now thinking about it.
I get it, anecdotal, but the seed is planted and at a point it will sprout.
To me, this is fundamentally bullish, because sooner or later we will run out of people who capitulate, and sooner or later, those who have never purchased gold or silver, but are now thinking about it, will actually make that first purchase.
Moving on to the markets being exactly where they were when I stopped watching the tick by tick, that is basically what I am seeing.
Granted, my statement needs to be qualified somewhat because it is really the fact that the ESF and Fed propped-up markets are slightly higher, and gold and silver are slightly lower, but in general terms, right where they were at the middle of last week.
The bear wedge in gold has cause somewhat of a break-down:
However, the President Trump’s forced bottom in gold still holds.
$1215 seems to be a floor where the buying step in. If we break-down below that $1210 intra-day low, then I think a test of whole number support at $1200 is very possible.
Why is gold looking like hot doo-doo, still?
In part that answer will be shown when we get to the US dollar, the stock market, and the VIX.
President Trump’s induced bottom in silver has also held:
But let’s not kid ourselves, a breakdown from here, especially below the $15.18 print, would have us testing whole number support of $15.
Looking at the silver chart above, which goes back one year, we can see it can really be summed up by four words – “a long, painful fade”.
Silver’s ills can also be seen in light of the dollar, the stock market, and the VIX as well.
First, however, the gold to silver ratio is still range-bound between 78 and 80:
As the ratio finds itself in suspended animation, hovering around 80, for those who like to make decisions based off of the ratio (as I do), the ratio is still favoring silver right now.
Palladium has faded its recent move:
The recent move took palladium above $900, but overnight and into this morning it appears palladium is losing whole number support.
Platinum looks like its forming a bearish wedge of its own:
And if that pattern holds, platinum could be testing whole number support again.
So with all four precious metals, at risk of sounding like a broken record, we really are at an inflection point. Either we get moving here or the break-downs are going to bring even more pain and frustration all around.
Are there any events left in the week that could move the metals one way or another?
Well, among other things, we get inflation data on Thursday and Friday:
And as gold and silver are hedges against inflation, it will be interesting to see if investors finally begin to catch on to this fact.
That said, last week’s FOMC and BLS Jobs Report were met with a whole lot of “meh” response in gold & silver, so as we wind down summer, and an especially grueling summer doldrums, I would not be surprised to see minimal movement in the metals regardless of the PPI and CPI prints.
The commodities are right where they were when I stepped away from the charts last week.
Crude oil is still dancing around its 50-day moving average:
$70 has been acting as resistance for the past couple of weeks.
Copper looks like it could have put in a double-bottom around $2.70:
If that is not a double-bottom, and if copper starts falling in price again, copper will have officially entered in a “bear market” with losses of greater than 20%, but more troublesome would be interpreting what the signal would be for the broader markets.
President Trump’s forced top in the dollar still holds:
But what happens if the dollar index surges to 96?
One of the points I made above is that the continued weakness in gold and silver are mirror opposites of the DXY. That is, as the DXY surged above 95 again last week, and has stayed above 95 ever since, we saw the mirror opposite drop in the prices of gold & silver.
The yield on the 10-year is still near, but not over, 3.0%:
The question is where does yield go from here?
If we take a starting point of early April and look at the rounded bottom from early July, we can see the trend does look like yield is going higher from here.
The stock market looks poised to make that surge to new all-time highs after all:
Many analysts thus far have been so sure of the peak being at the end of January, but I’m not so sure.
I think we could see another run to new all-time highs yet again.
Well, in part, because VIX has once again been neutered:
The VIX is poised to open the day below eleven.
So here’s the thing I didn’t mention: Peak Trump is alive and well.
When I first laid out my theory, I said gold and silver were going to stay down in the dumps until Peak Trump begins unwinding.
And while every analyst says the turn in gold and silver is just around the corner, I agree, but I say we don’t get to that corner until the unwind of Peak Trump.
And we have a ways to go.
– 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.