Gold & Silver Measured Moves

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

The next few weeks are certain to attract much attention to precious metals.  Hardly anyone can argue that Gold has not experienced an incredible upside price rally over the last 12+ months.  

Recently, Gold closed above $1800 for the first time since 2011.  

Our researchers believe the next target is $1935.  Keep reading to learn why we believe this is the next major price target for Gold.

Gold Weekly Price Analysis

Over the past 18+ months, Gold continues to develop price patterns that seem to be replicating going forward.  This pattern consists of an advance in price followed by consolidation/rotation in price to set up a new momentum base.  

The example of this price advance from May 2019 to August 2019 consisted of a $267 upside price advance (just over 20%).  Subsequent advances were similar in size. November 2019 to March 2020 advance rose $248.  March 2020 to April 2020 advance rose $325. 

Our research team believes the current momentum base, near $1725, will prompt a rally in Gold that will target $1935 in a similar type of price advance.  After that level is reached, a new momentum bottom will likely setup near $1900 which will be followed by another upside price advance.  

This time targeting $2150 to $2190.  We believe once Gold clears the $2100 level, global investors will identify the rally more efficiently and the upside parabolic price move may extend very rapidly.

Silver Weekly Price Analysis

With Silver, the measured moves are averaging about $5.25 to $5.40 with each advance.  If this continues from the current momentum base level near $17.50, then the next upside price target level should be near $23.00 in Silver.  

Beyond that, the subsequent target level should be near $28.00.

This would represent a massive upside price advance in Silver of nearly 59%.  Ultimately, the upside move in metals illustrates a strong level of fear in the markets related to global market stability and solvency.  

Silver has recently begun a move above the $19.00 price level and once it clears the $21 level, the next upside price advance should be fairly quick.

We believe the early Q2 2020 earnings data may shock the markets and cause the metals markets to rally.  Initially, though, the metals may move a bit lower as the markets contract from the shock.  This should be short-lived as metals have already rallied to a point where investors know the fear of the shock should act to propel metals above recent momentum base levels.

Watch how Silver moves compared to Gold.  Silver has already started to move more aggressively higher than Gold.  

Once the real parabolic move begins, Silver will begin to skyrocket much higher than Gold on a percentage basis.  

We should know how the metals will react to the economic data fairly quickly.  

If you have not already hedged your portfolio into precious metals or miners, we suggest establishing a 15% to 25% protective hedge at this time.

The covid bonus

America’s huge stimulus is having surprising effects on the poor

Though severe deprivation is rising, not everyone is worse off

No one welcomes a recession, but downturns are especially difficult when you are poor. Rising unemployment means rising poverty: the recession of 2007-09 prompted the share of Americans classified as poor, on a widely used measure, to jump from 12% to 17%.

That economic shock, as bad as it was, pales in comparison with what America is seeing today during the coronavirus pandemic. The jobs report for June, published on July 2nd, showed that unemployment remained well above the peak of a decade ago.

Severe deprivation is certainly on the rise. According to a new survey from the Census Bureau, since the pandemic began the share of Americans who “sometimes” or “often” do not have enough to eat has grown by two percentage points, representing some 2m households.

An astonishing 20% of African-American households with children are now in this position.

Meanwhile, the proportion of Americans saying that they are able to pay the rent is falling.

Many more people are typing “bankrupt” into Google.

Yet these trends, bad as they are, do not appear to be part of a generalised rise in poverty. The official data will not be available for some time. A new paper from economists at the University of Chicago and the University of Notre Dame, however, suggests that poverty, as measured on an annual basis, may actually have fallen a bit in April and May, continuing a trend seen in the months before the pandemic hit (see chart 1).

Why? The main reason is that fiscal policy is helping to push poverty down.

The stimulus plan passed by Congress is twice the size of the one passed to fight the recession of a decade ago. Much of it, including cheques worth up to $1,200 for a single person and a $600-a-week increase in unemployment insurance (UI) for those out of work, is focused on helping households through the lockdowns.

At the same time, unemployment now looks unlikely to rise to 25% or higher, as some economists had predicted in the early days of the pandemic, thereby exerting less upward pressure on poverty than had been feared.

The upshot is that the current downturn looks different from previous ones. Household income usually falls during a recession—as it did the last time, pushing up poverty.

But a paper in mid-June from Goldman Sachs, a bank, suggests that this year nominal household disposable income will actually increase by about 4%, pretty much in line with its growth rate before the pandemic (see chart 2).

The extra $600 in UI ensures, in theory, that three-quarters of job losers will earn more on benefits than they did in work.

By international standards, America’s unexpected success at reducing poverty nonetheless remains modest. Practically every other rich country has a lower poverty rate. It is also a fragile accomplishment.

The extra $600-a-week payments are supposed to expire at the end of July. The authors of a recent paper from Columbia University show that poverty could rise sharply in the second half of the year, which seems likely if unemployment has not decisively fallen by then.

Goldman’s paper assumes that Congress will extend the extra unemployment insurance, but that the value of the payment will drop to $300. Even then, household disposable income would probably fall next year.

Whether extra stimulus would help those at the very bottom of America’s socio-economic ladder—including people not able to buy sufficient food—is another question. Six per cent of adults do not have a current (checking), savings or money-market account, making it difficult for them to receive money from Uncle Sam.

Some may have been caught up in the delays which have plagued the ui system, and a small number may be undocumented immigrants not entitled to fiscal help at all. Others report not being able to gain access to shops closed under lockdowns.

The best way to remedy this would be to get the virus under control and the economy firing on all cylinders once again.

But that still looks some way off.


What if the dotcom boom and bust hadn’t happened?

Value investing might not have the same moral authority as today

There is a lovely quotation at the start of “Security Analysis”, a canonical text by Benjamin Graham and David Dodd published in 1934. “Many shall be restored that now are fallen and many shall fall that are now in honour.” It is by Horace, a Roman poet who knew all about reversals of fortune, having lived through Rome’s bloody transition from republic to empire.

Two millennia later, amid the ruins of the dotcom mania, Warren Buffett was moved to recall Horace’s words. “My appreciation for what they say about business and investments continues to grow,” he wrote.

It is now 20 years since the Nasdaq, a tech-heavy index of shares, reached a peak after a frenzied rise during the late 1990s. The apex, on March 10th 2000, marked the end of the internet bubble. The bust that followed was a triumphant vindication of the sober valuation methods pioneered by Graham and Dodd and popularised by Mr Buffett.

True value is a low price relative to some financial measure of intrinsic worth—recent profits, say, or the book value of assets. Dotcom-era analysts, if they bothered at all, used flakier metrics: “eyeballs”, “engagement” or simply “the opportunity”.

Perhaps you can have too much sobriety. For the past decade buying “value” stocks has been an unrewarding strategy. America’s stockmarket is dominated by a handful of technology companies, whose stocks trade on steep multiples of earnings and book value. The current recession has not changed matters.

The fallen have not been restored. If anything, those in honour have more of it. Value investors, meanwhile, are unmoved. This begs a heretical thought. If the dotcom boom and bust had not happened, would value investing have quite the same moral authority today?

In posing such a question, you run into an immediate problem. Value investing is an austere creed. It is as much about moral fibre as business analysis. Value investors hope to be rewarded for enduring the pain of waiting for their strategy to come good. Most investors don’t like to be wrong for so long, to hold the unfashionable stocks and to spurn the faddish ones.

But value investing is a faith that is sustained by the scepticism of non-believers. Indeed their scorn is in large part the point of it. For its adherents, vindication will surely come. It has before, even when all seemed lost. That makes rebutting its tenets hard.

The legacy of the dotcom bust makes it all the more difficult. So as a thought experiment let’s imagine, for a moment, that the late 1990s bubble never happened. Value investing would have lacked its most spectacular vindication. Its hold on the investment world would be less secure.

The use of forward-looking scenarios to judge the long-term prospects, and thus the worth, of a fast-growing company could not be so easily decried as foolish.

The business of stock-picking would be much more about engaging with, and understanding, the peculiarities of companies rather than an arms-length selection based on financial characteristics. And without the frauds and scandals of the late 1990s, the public markets might have remained a welcoming place for small, early-stage firms. More start-ups might in turn have tailored themselves for an ipo rather than for a sale to an incumbent technology giant.

The value creed says rapid growth must eventually peter out. Instead the big business successes of the past decade—Google, Amazon and Facebook in America; Alibaba and Tencent in China—have grown to a size that was not widely predicted. Companies of this kind are characterised by network effects.

The more people use them, the more useful they are to other customers. They enjoy increasing returns to scale. The bigger they get, the cheaper it is to serve another customer. Dotcom-era gurus banged on about the power of network effects and scale economies. There is more to building an enduring company, though.

A business also needs something unique, a distinctive culture or a superior technology, that cannot be replicated by others. Picking winners is not easy; nor is paying a price for them commensurate with their chances of success. But screening for stocks with a low price-to-fundamentals is more likely to select businesses whose best times are behind them than it is to identify future success.

In the late 1990s ideas about fundamental value went by the wayside. A bubble blew up. It then burst dramatically. The bust was a painful lesson for investors. But perhaps some lessons were learnt a little too well.

“When fools shun one set of faults”, wrote Horace, “they run into the opposite one.”

The Triple Crisis Shaking the World

More than just a public-health disaster, the COVID-19 pandemic is a history-defining event with far-reaching implications for the global distribution of wealth and power. With economies in free-fall and geopolitical tensions rising, there can be no return to normal: the past is passed, and only the future counts now.

Joschka Fischer

fischer170_sorbettoGetty Images_coronavirusshockeconomy

BERLIN – The COVID-19 pandemic is entering its second phase as countries gradually reopen their economies and loosen or even revoke strict social-distancing measures. Yet, barring the arrival of an effective, universally available therapy or vaccine, the transition back to “normal” will be more aspirational than real.

Worse, it risks triggering a second wave of infections at the local and regional level, and possibly on a much larger scale.

True, political decision-makers, health-care providers, scientists, and the general public have learned a great deal from the experience of the first wave. Though a second wave of infections seems highly probable, it will play out differently than the first wave.

Rather than a full-scale lockdown that brings economic and social life to a standstill, the response will rely mainly on strict but targeted rules for social distancing, face masks, telecommuting, video conferencing, and so forth. But, depending on the next wave’s intensity, local or regional lockdowns may still be deemed necessary in the most extreme cases.

Much like the first wave of the pandemic, the next phase will involve a trio of simultaneous crises. To the risk of new infections getting out of control and spreading globally once again must be added the ongoing economic and social fallout and an escalating geopolitical bust-up.

The global economy is already in a deep recession that will not be quickly or easily overcome.

And this, along with the pandemic, will factor into the intensifying Sino-American rivalry, particularly in the months leading up to the United States’ presidential election in November.

As if this combination of health, socioeconomic, and geopolitical upheavals were not destabilizing enough, one also cannot ignore the Trump factor. If US President Donald Trump were to win a second four-year term, the current global chaos would escalate dramatically, whereas a victory for his Democratic opponent, Joe Biden, would at least bring greater stability.

The stakes in the US presidential election could scarcely be higher. Given the world’s mounting crises, it is no exaggeration to say that humanity is approaching an historic crossroads. The full extent of the economic recession probably will not become apparent until this fall and winter, when it will most likely come as another shock, because the world is no longer accustomed to such dramatic contractions. Both psychologically and in real terms, we are accustomed to continuous growth.

Will richer countries in the West and Asia be able to deal with a deep, widespread, prolonged recession or even depression? Even if trillions of dollars in stimulus spending proves sufficient to offset a full collapse, the question will be what comes next.

In the worst scenario (which is not impossible), Trump is re-elected, the second wave of the pandemic is global, economies continue to crash, and the new cold war in East Asia turns hot. But even if one does not assume the worst, the triple crisis will usher in a new era, requiring that national political and economic systems and multilateral institutions be rebuilt. Even in the best-case scenario, there can be no return to the status quo ante. The past has passed; only the future counts now.

We should harbor no illusions about what might and should come next. The crises triggered by the pandemic are so deep and far-reaching that they inevitably will lead to a radical redistribution of power and wealth at the global level. The societies that have prepared for this outcome by mustering the necessary energy, know-how, and investments will be among the winners; those that fail to see what is coming will find themselves among the losers.

After all, long before the pandemic, the world was already undergoing a transition to the digital age, with far-reaching implications for the value of traditional technologies, legacy industries, and the distribution of global power and wealth. Moreover, an even greater global crisis is already fully visible on the horizon. The consequences of runaway climate change will be far graver than anything we have ever seen, and there will be no chance of a vaccine to solve that problem.

The COVID-19 pandemic thus marks a real turning point. For centuries, we have relied on a system of political economy comprising sovereign egoistical nation-states, industries (both under capitalism and socialism) that run on fossil fuels, and the consumption of finite natural resources. This system is quickly reaching its limits, making fundamental change unavoidable.

The task now is to learn as much as we can from the first wave of the triple crisis. For Europe, which seemed to have fallen far behind economically and geopolitically, this moment represents an unexpected opportunity to address its obvious shortcomings. Europe has the political values (democracy, rule of law, and social equality), technical know-how, and investment power to act decisively in the interest of its own principles and goals, as well as those of humanity more generally. The only question is what Europeans are waiting for.

Joschka Fischer was German Foreign Minister and Vice Chancellor from 1998-2005, a term marked by Germany's strong support for NATO's intervention in Kosovo in 1999, followed by its opposition to the war in Iraq. Fischer entered electoral politics after participating in the anti-establishment protests of the 1960s and 1970s, and played a key role in founding Germany's Green Party, which he led for almost two decades.

‘Large demand gap’ looms for US government bonds

Markets debate how far the mismatch will push up Treasury yields

Colby Smith in New York

Fed purchases unlikely to offset supply, meaning yields could rise

A gulf is growing between the amount of US government debt to be issued by the Treasury department this year and what the Federal Reserve is planning to buy.

The US fiscal deficit is on track to reach levels not seen since the second world war and the Treasury department is preparing to issue a record amount of securities to fund it, meaning that issuance could exceed $4.7tn this year. An increasing proportion of that borrowing will come from longer-term debt.

Meanwhile, the Fed has sharply scaled back the pace of its asset purchases, from $75bn a day at the height of the pandemic in March to roughly $80bn a month since early June. At this rate, the central bank will snap up just a quarter of the gross long-term Treasury supply in the second half of the year, JPMorgan calculates.

That left a “large demand gap”, the bank said, especially if private investors do not ramp up their purchases. However, fears that this gap could cause yields to spiral higher, potentially upsetting still-fragile financial markets, may be unfounded.

The analysts at JPMorgan do expect yields to climb but think the rise will be “modest,” as investors will continue to demand safe assets during the contraction in economic activity and growing deflationary risks.

Treasury yields have hovered at record lows since the coronavirus outbreak ripped through global markets three months ago. Inflation expectations have fallen dramatically in the months that followed, with one market measure derived from inflation-protected US government securities — the 10-year break-even rate — remaining at just over 1 per cent.

Given that this is some way short of the Fed’s 2 per cent target, few investors see the central bank tightening its monetary policy by raising rates or scrapping asset purchases any time soon.

“Unless inflation expectations rise rapidly and the market prices an aggressive tightening path for the Fed, long-term yields are unlikely to rise significantly, despite deficits larger than we have seen in over 80 years,” said the JPMorgan analysts.