Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24
How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - 17th Feb 24
Why Rising Shipping Costs Won't Cause Inflation - 17th Feb 24
Intensive 6 Week Stock Market Elliott Wave Training Course - 17th Feb 24
INFLATION and the Stock Market Trend - 17th Feb 24
GameStop (GME): 88% Shellacking Yet No Lesson Learned - 17th Feb 24
Nick Millican Explains Real Estate Investment in a Changing World - 17th Feb 24
US Stock Market Addicted to Deficit Spending - 7th Feb 24
Stocks Bull Market Commands It All For Now - 7th Feb 24
Financial Markets Narrative Nonsense - 7th Feb 24
Gold Price Long-Term Outlook Could Not Look Better - 7th Feb 24
Stock Market QE4EVER - 7th Feb 24
Learn How to Accumulate and Distribute (Trim) Stock Positions to Maximise Profits - Investing 101 - 5th Feb 24
US Exponential Budget Deficit - 5th Feb 24
Gold Tipping Points That Investors Shouldn’t Miss - 5th Feb 24
Banking Crisis Quietly Brewing - 5th Feb 24
Stock Market Major Market lows by Calendar Month - 4th Feb 24
Gold Price’s Rally is Normal, but Is It Really Bullish? - 4th Feb 24
More Problems in US Regional Banking System: Where There's Fire There's Smoke - 4th Feb 24
New Hints of US Election Year Market Interventions & Turmoil - 4th Feb 24
Watch Consumer Spending to Know When the Fed Will Cut Interest Rates - 4th Feb 24
Blue Skies Ahead As Stock Market Is Expected To Continue Much Higher - 31st Jan 24
What the Stock Market "Fear Index" VIX May Be Signaling - 31st Jan 24
Stock Market Trend Forecast Review - 31st Jan 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Silver’s Liquidity Dreams a Mirage?

Commodities / Gold & Silver 2023 Jul 24, 2023 - 04:05 AM GMT

By: Submissions


The white metal is priced for an economic outcome that’s unlikely to materialize. 

AI Optimism

With liquidity-fueled assets outperforming in 2023, they’ve decided that QT and higher interest rates are not going to spoil their party. Moreover, with silver and gold also liquidity beneficiaries, they have adopted similar attitudes. However, while the gambit can persist in the short term, a major climax should unfold over the medium term.

Please see below:

To explain, the light blue line above tracks the NASDAQ 100, while the dark blue line above tracks the combined balance sheets of the Fed, the ECB, and the BOJ. If you analyze the divergence on the right side of the chart, you can see that AI optimism has the crowd assuming that liquidity no longer matters. 
But, with QT continuing to intensify, a Big Tech drawdown should sink the S&P 500 and capsize the PMs. 
Please see below:

To explain, the Fed’s balance sheet hit another cycle low this week (updated on Jul. 20), as the bank-run rally is long gone. As such, the central bank continues to siphon liquidity out of the system, and the policy action should have immense consequences in the months ahead. 
For example, we have stated repeatedly that higher interest rates are the first part of our bearish fundamental thesis, and the second is a recession. Furthermore, while the USD Index benefits from higher Treasury yields, it often soars during periods of economic stress. And with recession winds blowing despite the soft landing narrative, historical probabilities continue to support an ominous economic conclusion.
Please see below:

To explain, the black line above tracks the year-over-year (YoY) percentage change in U.S. industrial production, while the vertical gray bars represent recessions. And on Jul. 18, the metric went negative YoY for the first time since before the coronavirus pandemic. 
Moreover, while a false signal was realized in 2015, 18 of the last 23 times U.S. industrial production has gone negative YoY, it’s culminated with recessions (since 1920). As a result, while silver is priced for perfection, storm clouds continue to form, and it should not be a surprise if (when) an economic malaise arrives.  

Resilient Consumers

Before the second act can begin, the liquidity drain should continue as consumers remain relatively cash rich. As evidence, Bank of America – the second-largest U.S. bank – released its second-quarter earnings on Jul. 18. CFO Alastair Borthwick said during the Q2 conference call:
“Broadly speaking, average deposit balances of our consumers remain at multiples of their pre-pandemic level, especially in the lower end of our customer base.”
He added:
“The consumer is still in a pretty healthy place. You can see that in the unemployment statistics, and you can see it in the way that they're just continuing to spend a little bit more money YoY. So, you know, I feel like we've been pretty consistent. The consumer is pretty resilient. That remains the case, and we're benefiting it from right now.”
Please see below:

To explain, Bank of America has consumer spending up by 5% YoY, with strength seen in travel & entertainment and services. So, while we warned throughout 2022 that consumers would keep the Fed’s foot on the hawkish accelerator, little has changed. They’re still spending money, and as Bob Prince noted, it’s driven by income, not credit growth. And with oil prices ratcheting higher, the outlook is bullish for MoM inflation. 
Please see below:

To explain, Bank of America has the largest U.S. retail deposit base, and the chart at the bottom left shows how checking account balances have only declined by $30 billion from their Q2 2022 high of $606 billion. In contrast, the chart at the bottom right shows that consumers’ investment assets have risen by $72 billion over that timeframe. As such, Americans are far from tapped out, and financial conditions should continue to tighten to eradicate inflation
Overall, the crowds’ misguided pivot hopes hurt the U.S. dollar. But, that narrative reversed on Jul. 20, as interest rates and the USD Index rallied. And with more of the same poised to materialize over the medium term, gold, silver and mining stocks should suffer as the Fed further suppresses the U.S. economy. 
Why do you think risk assets have ignored the liquidity drain?

By Alex Demolitor

Alex Demolitor hails from Canada, and is a cross-asset strategist who has extensive macroeconomic experience. He has completed the Chartered Financial Analyst (CFA) program and specializes in predicting the fundamental events that will impact assets in the stock, commodity, bond, and FX markets. His analyses are published at


All essays, research and information found above represent analyses and opinions of Alex Demolitor and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Alex Demolitor and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Alex Demolitor reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Alex Demolitor Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

© 2005-2022 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in