End of Month (EOM) / Previous EOM
- Gold: $1765 ($1808)
- Silver $20.35 ($20.23)
- HUI: 207 (223)
- DXY: 105 (104)
- S&P: 4130 -14% (3785 -21%)
- 10-Yr: 2.6% (3.0%)
- Oil: $98 ($107)
Where Are Gold & Silver Headed?
If you remember my last monthly recap, I was bearish gold in July. I didn’t see anything that could release it from the trap of a very high dollar and poor sentiment. Gold needs a trigger, and that still seems a few months away. Fortunately for us, that trigger is getting closer.
The S&P 500 is currently in another bear market rally and is back above 4000. I don’t think this rally will last much longer, and then we will be back in downward selling pressure. I expect the S&P 500 to soon hit a new low and find a bottom around 3300-3400, with a chance to fall to 3000. But I’m not expecting a stock market crash because of MMT (Fed money printing), so we will find a bottom soon.
The Fed raised rates in July another 75 bps. Chairman Powell called it interest-rate neutral (implying inflation is no longer a serious problem) and said they would be data-dependent going forward. Basically, he said that they did not expect inflation to be their number one problem (although they expect to raise rates a few more times this year before pausing). Instead of having inflation as their main focus, they now seem more concerned about a slowing economy.
The Fed knows inflation is not going away in the near term, yet wants to focus on being data-dependent. So, what data has the most priority? Clearly, it won’t be inflation. This means they will likely raise rates in September, but only .50 or .25 bps. Then perhaps one more .25 bps raise in Q4 if inflation remains hot. But the takeaway this week from the Fed is that they are almost finished raising rates (no matter what inflation does), and the pause will be short before they begin lowering them in 2023.
Wall St liked the news, with the S&P jumping to 4100 this week. I think it is a false breakout and another dead-cat bounce (the 5th since October). I expect August to be red (down) for stocks as Wall St digests what is coming. Why red? Because the economy is dead (zero growth). Let’s review each sector. 1) Retail: dead. 2) Autos: dead. 3) Housing: dead. 4) Manufacturing: dead. 5) Tech: barely breathing. Which sector has any growth? And now the economy has to digest the July interest rate raise, along with another one coming in September. Wall St is looking way ahead (2023), but they will begin getting nervous soon (before the end of August, is my guess).
Gold had a nice bounce this week because the Fed backed off its fight against inflation. But the dollar remains strong, creating headwinds, and the stock market has a lot of selling coming. Can gold (and silver) fade that selling? Perhaps, but that is a 50/50 bet at best. I think we have to remain cautious that the bottom is not yet in for both the stock market and PMs.
While we may get lower lows in gold, silver, and the miners this year (the odds seem to favor that outcome), I think we have to begin getting bullish.
We are close to a bottom, and the quality miners are not likely to crash much lower. It’s probably not a bad time to buy to the bottom. Of course, no one can predict the future, and it’s always possible that markets confound expectations.
Why get bullish? The economy is basically dead (zero growth), and inflation is raging. A soft landing is unlikely. We have more interest rate raises coming, which have to be digested by the economy. The Fed just gave up fighting inflation and gave a bogus interest rate neutral call. This is not a surprise. They never had any intention of fighting inflation. Ever since inflation appeared in 2021, they tried to pretend it wasn’t real (transitory!).
As I have said many times in this newsletter, inflation is the kryptonite of MMT. The whole theory behind MMT is that inflation will not appear (it’s a counter-intuitive belief that makes no sense). This is why Yellen said she did not expect to see another recession in her lifetime. The Fed thought inflation was dead, and they could expand the money supply at any pace they desired. This was always pie-in-the-sky fantasy, and now it is biting them hard.
Powell and the Fed are still praying inflation goes away on its own. He said this week that he doesn’t think we need to have a recession to end inflation. He is living in a fairytale, as is Yellen. They have a growth problem and no tools to fix it. America made the mistake of de-industrializing into a rentier/service economy that could not grow without debt. So, we have become dependent on debt expansion, and now that bubble has grown into a problem.
That mistake is now revealing itself and the ramifications. The economy can no longer grow without constant stimulus (debt expansion and low interest rates). Consequently, corporate America is turning into zombies that cannot pay their debt, and the middle class is going bankrupt with an overburdened debt problem. This is similar to Japan in the 1990s. The future is not pretty for the US economy. Our best chance is to explode our money supply to maintain our standard of living, but will that work? Probably not. The most likely outcome is fallout (foreclosures, defaults, and pain), and not a return to growth.
Wall St is on hopium and thinks we are returning to normal in 2023. But, trust me, they are running out of hopium pills. This week’s buying on Wall St is a clear signal of what is coming. There were zero reasons to get excited about what Powell said. Wall St is misguided, and it is blatantly obvious. This economy is in trouble. Can’t they see that?
Not only is the US economy in trouble, but US global dominance (which began after WW2) is also at risk. The dollar appears to be strong, but I think it is a false breakout. The US is basically a bankrupt corporation, and its stock is the USD. What happens to the value of a company’s stock when it goes bankrupt? I think that will be the outcome for the dollar, and when does the world sniff that out?
If you are tracking my train of thought, you should be getting giddy about gold and silver’s prospects. If America is screwed, then who benefits? Asia. And if Asia is the new boss, what happens to the dollar? It tumbles. And if the dollar tumbles, what happens to gold? It rises. That’s my thesis and has been my thesis for 30 years. It’s been a long wait, but we are almost there.
I’ve always rejected de-industrializing as an economic strategy. A service/rentier economy will never generate enough wealth to increase a country’s standard of living. The US has been forced to use its military to bully the rest of the world to its economic needs. Those days are ending. Pushing Russia into a corner (by expanding NATO) and forcing them to invade Ukraine was the final straw. The world has now reached its limit of US global dominance and has begun to push back.
The economic war between China and the US has now become overt and obvious. China is using the Ukraine war as a wedge against US global dominance. That wedge is now apparent as China allies with Russia and other countries to form the new BRICS+ economic block. It is only a few weeks or months away until the BRICS+ economic block announces their SWIFT alternative and competing global currency (a basket that will likely include gold).
This is the end of US global hegemony. This is a transition point for the US, and not a good one. Once it begins, the dollar will fall, and gold will rise. I expect the US to default on its government bonds. Not a 100% default, but a haircut of at least 25%. I could be wrong about that, and I don’t expect it to occur for a few years, but I do see it as inevitable. That’s America’s ugly future: a downturn and a downfall.
I wrote about this in book titled The Demise of America. I’ve seen this coming for a long time. On the cover is a dollar bill ripped in half. Indeed, it is the USD (burdened by debt) that causes the US empire to lose its dominance.
There is a saying, “Own bonds, wear diamonds.” Well, until now, US bonds have always been considered risk-free. That sentiment is going to end soon. It’s not dead yet, and is a big reason why gold continues to have terrible sentiment on Wall St. Nobody thinks that they need to own gold. Investors would rather hold dollars or bonds as their risk-free asset of choice. How much longer will that sentiment last? If my thesis has any accuracy, then it won’t be for much longer.
Let’s talk a bit about the near term, Q4. Inflation is not going away in 2022, and economic growth will be flat to negative for the rest of the year. David Hunter talks about a looming melt-up in the stock market, but I think that is unlikely. Instead, I think Q4 will be one of malaise and stagflation. I expect the stock market to end the year around 3500, because of a weak job market and many mass layoffs.
During Q4, the Fed will be in the process of pausing rate hikes and ignoring inflation. This will be good for gold. It will create uncertainty because high inflation will be bad for the economy. And a bad economy with no economic growth won’t give Wall St any oxygen to push share prices higher. Wall St will begin to turn into Japan, similar to the early 1990s, where investors lost their appetite for stocks. Once this happens, the debt leverage problem will raise its head, as corporate bonds, household debt, and pensions begin to experience problems.
Once growth slows to a stop, companies will implement hiring freezes, and banks will curtail lending significantly. This will create a negative feedback loop similar to what happened in Japan in the 1990s. Growth will grind to a halt, and nothing the government attempts will restart the economy.
Let the muddling begin. That is America’s future for this decade. There will not be a crash, but growth will grind to a halt. There will be winners and losers and lots of pain. The term malaise will be used quite often to describe the economy and state of America.
In my last two books, I gave a glimpse of what is coming. The first was called The Path Forward. It describes how we will transform as a society. The second just came out and is called America’s Cold War: Conservatives vs. Democrats, Why Neither Side Can Win. It describes why our political system will fail, and what will replace it.
I’ve always been a visionary and became a gold investor in 1991 after America began to de-industrialize. I was early, but now it is becoming obvious to many people that the America Era is ending. The benefactor in that downfall will be gold (and silver).
Should I be Buying Gold & Silver Right Now?
For those of you who believe in my thesis (or something similar), now is a good time to take advantage of this opportunity. I have been through a few of these PM (precious metal) selloffs, and I have learned that these are the best times to buy quality on sale. In fact, these are usually the only times you get to buy certain quality producers that are usually too pricey (1 or 2 baggers).
Try to pick up some quality producers with market caps from $100M to $3B. Avoid those that are too pricey and focus on those on sale that are oversold. They will have much more leverage as gold/silver prices rise. A producer that prints as a 3 bagger at $2500 gold could turn into a 5+ bagger. And a 5 bagger, could very well turn into a 10 bagger. It depends if we have a mania and new investors enter this sector and push up the FCF (free cashflow) multiples.
I gave you a price range, but also focus on locations. For instance, I wrote a SeekingAlpha article this week on Regis Resources (which I recently bought) and included a list of similar Aussie producers at the end. I think it is a great idea to load up on Aussie gold producers. Why? Investors (when they finally show up) will focus on quality locations, and Australia will stand out, along with Canada.
Other locations to get exposure are Newfoundland, the Golden Triangle (British Columbia), the Yukon, and all of Canada. All of these are in Canada, which I expect to have similar investor interest as gold prices rise. Those are the only locations where I make it a priority of getting exposure.
Start with producers and look for those oversold. Next, buy a few development plays that look juicy (extremely oversold). Finally, consider a few optionality plays. Those are the three categories that I’m focusing on.
By buying the dip, you are lowering your cost basis and lowering your breakeven cost for your entire portfolio. Some investors can’t buy the dip. In fact, since 2020, GSD has lost about 1/3 of its subscribers. We were over 1,000 subscribers in 2020 (when gold was trending) and are now down to 630. Why? Investors hate losing money and have trouble buying dips.
My cousin was buying Bitcoin at $35K and above. Once it dropped below $35K, he refused to buy the dip. He is a typical investor. Once they get underwater and have paper losses, they freeze. In fact, investors hate paper losses so much that they lose any interest in the sector where they have losses. Whereas, my cousin has zero interest in Bitcoin after stacking it when it was trending, many GSD subscribers have the same experience with miners. Once gold trends down, they lose any interest in miners. The bull effectively bucks them off.
If you are reading this, you are one of the survivors. I’m sure many of you have scars, and some of you have not bought the dip because of those scars. But don’t let the bull buck you off, and don’t lose hope in the final outcome. Buy the dip and look for opportunities. This is when they appear.
Of course, when the upside is high, so is the risk. We are going for multi-baggers, and that is never a slam dunk. I think that is why this bull has been so brutal, with a 2-year correction. This PM bull market knows it is going to be an epic run, and only those who deserve (who have perseverance) to get in early will be allowed. Very few will be on board for the first big move.
* * * * *
Let’s look at three charts. First up is the monthly HUI. It has two channels we are dealing with: 150 to 200. We want to stay out of this channel! Next, 200 to 280. This is the channel we want to escape. I especially like being above 250, which I consider the neutral level between trending and correcting. So, we are currently deeply correcting and are around 200. Notice how high we need to run for ATH! This should make you excited. I think we are heading to 1000 over the next 2-3 years.
The next chart is the monthly gold chart. Support is clearly $1680, which held in July. Now we need to get back above $1800. Once above $1950, there isn’t much overhead resistance.
Finally, here is the monthly silver chart. We needed $18.50 to hold in July, and it did. Now we need to get out of this channel. The battle begins around $23. The banksters want to stay below $23-24. Ideally, they would like to see a $21-22 handle, but that is not likely to hold very long. They are fighting a losing battle. Above $28, and they begin to run out of bullets.
More Analyses From Don Durret
Find my previous Resource Talks articles here.
Thank you for reading, and don’t hesitate to correct me in the comments if you think I’m wrong.
– Don Durrett.
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