Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Time to take the RED Pill - 28th May 24
US Economy Slowing Slipping into Recession, But Not There Yet - 28th May 24
Gold vs. Silver – Very Important Medium-term Signal - 28th May 24
Is Gold Price Heading to $2,275 - 2,280? - 28th May 24
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Should Heed Mining Socks Warning

Commodities / Gold and Silver Stocks 2023 Oct 28, 2023 - 12:32 AM GMT

By: Submissions

Commodities

While geopolitical conflict has kept gold afloat, mining stocks’ weakness signals trouble ahead. 

 Economic Recession Looms

While risk assets attempt to break free of their bearish corrections, gold’s relative outperformance has the yellow metal shining bright. Despite that, we’ve booked 11-straight profitable trades, and our 12th (currently open) remains in the green. As a result, our success highlights why mining stocks are often better trading instruments than the yellow metal. 

Furthermore, while gold has largely sidestepped the recent risk rout, a recession is bearish for nearly all assets, and gold should suffer mightily if (when) the economic pain unfolds

For example, S&P Global released its U.S. Composite PMI on Oct. 25. And while the headline results were decent and it outperformed expectations, weakness was present beneath the surface. An excerpt read:



“Although some service providers highlighted a pick-up in customer numbers, many continued to note that high interest rates and challenging economic conditions weighed on client demand. Some mentioned smaller and less frequent orders being placed by customers. As such, service sector new business fell for a third month running.”

In addition:

“The rate of charge inflation eased to the weakest since June 2020 and was slower than the long-run series average. Firms were reportedly keen to pass through any cost savings made to customers in a bid to drive sales.”

Thus, while 2021 and 2022 (to a lesser extent) were filled with demand-driven inflation, those days are long gone. With firms increasing discounts to move inventory, consumer demand has suffered, and the weakness should continue in the months ahead. 

More importantly, the “rate of employment growth was only marginal overall,” as firms remain concerned about costs and future demand conditions. Therefore, the economic backdrop is heading in the wrong direction, and silver could be a major casualty if the trend continues.

Please see below:

Car Trouble

With the crowd ignoring the ominous implications of rising long-term interest rates, the consensus assumes a recession is highly unlikely. For context, we wrote on Sep. 29:



To explain, Bank of America’s latest Global Fund Manager Survey shows that only 21% of respondents expect a “hard landing” (the light blue bar) for developed markets over the next 12 months. Conversely, the majority expect a “soft” or “no landing” scenario to occur, which is a fairytale, in our opinion. 

To that point, with auto-loan delinquencies hitting an all-time highthe problems should only intensify the longer rates remain elevated, and this is bad news for oil and the PMs. Bloomberg noted:

“The percent of subprime auto borrowers at least 60 days past due on their loans rose to 6.11% in September, the highest in data going back to 1994, according to Fitch Ratings.”

Please see below:



To explain, the black line above tracks the delinquency rate for subprime auto loans. If you analyze the right side of the chart, you can see that higher long-term interest rates are impacting the real economy.

Remember, the average auto loan length is 72 months, which means that financing rates are highly sensitive to the movements of the U.S. 5-year and 7-year Treasury yields. And with both rising substantially over the last few months, the scars should continue to show.

As another ominous sign, we warned the resumption of student loan repayments would further suppress consumers’ wallets. And with this occurring alongside higher borrowing costs and lower wage inflation, Americans have less disposable income.

So, with U.S. toymakers sounding the alarm on Oct. 26, shares of Hasbro and Mattel sunk as consumers shunned holiday spending.

Please see below:



Moreover, we warned that darker days were on the horizon, and heightened volatility is bullish for the USD Index. We added on Sep. 29:

With less money to allocate to discretionary items, the current backdrop is much different than 2021/2022, in our opinion.

Please see below:



To explain, Jefferies surveyed student loan borrowers and found that roughly 40% to 50% plan to cut their spending on things like electronics, travel and apparel. As such, a confluence of factors has collided, making the economic outlook extremely unfriendly, and a Minsky Moment should help push the USD Index to new highs. 

Overall, the S&P 500 has suffered, and the rout has not helped the GDXJ ETF. And with both assets declining alongside lower interest rates on Oct. 26, the results highlight how economic uncertainty often leads to liquidations across several risk assets. In contrast, Treasury bonds and the USD Index are the primary safe havens. Consequently, more of the same should occur before the miners’ bear market ends.

For a deeper understanding of our investment thesis, subscribe to our premium Gold Trading Alert. We closed out our 11th- straight profitable trade recently, and our 12th made money again on Oct. 26. Furthermore, the technicals are essential for managing risk, as the fundamentals are not the best timing tools. As a result, becoming a premium member equips you with everything you need to succeed.

By Alex Demolitor

GoldPriceForecast.com.

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 GoldPriceForecast.com.

Disclaimer

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 http://www.MarketOracle.co.uk - 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