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Silver Price Still Underperforming Gold

Commodities / Gold & Silver 2023 Dec 12, 2023 - 08:46 AM GMT

By: Submissions

Commodities

While the yellow metal hit a new record high, the silver price remains below its post-pandemic peak. 

Recession Risks Loom Over Silver

While gold has dominated the headlines recently, silver and mining stocks have been material underperformers. And with the latter better barometers of investors’ enthusiasm, their relative weakness should concern the permabulls. 


Likewise, with weak economic data unlikely to help silver when investors fully digest the ramifications (look past pivot optimism), a 2024 recession could push silver back to its 2022 lows. 

For example, S&P Global released its U.S. Services PMI on Dec. 5. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, said:

“Firms providing both goods and services have become increasingly concerned about excessive staffing levels in the face of weakened demand, resulting in the smallest overall jobs gain recorded by the survey since the early pandemic lockdowns of 2020.”

Furthermore, after “evidence of spare capacity led to the non-replacement of voluntary leavers,” it’s another sign that the U.S. labor market has weakened. And while we warned that a recession, not inflation, is the next bearish catalyst, lower pricing pressures are normal when demand wanes at this part of the economic cycle.

Please see below:



To explain, services inflation has been the primary driver of the pricing pressures, as manufacturing PMIs have struggled. Thus, if (when) outright deflation occurs, risk assets like the PMs and the S&P 500 should come under heavy pressure. 

Continuing the theme, Challenger, Gray and Christmas Inc. released its job cuts report on Dec. 7. An excerpt read:

“So far this year, companies have announced plans to cut 686,860 jobs, a 115% increase from the 320,173 cuts announced in the same period last year. It is the highest January-November total since 2020, when 2,227,725 cuts were recorded. Prior to 2020, it is the highest year-to-date total since 1,242,936 cuts were announced through November 2009.”

The report added:

“Companies are expecting slower growth in the coming months, particularly in industries that support consumers.”

Plus, with 2024 looking nothing like 2021 or 2022, the report provided more evidence of a labor market confronting serious problems, which should help spur the USD Index as volatility increases. 

Please see below:

Uh-Oh Canada

The Bank of Canada (BoC) held its overnight lending rate steady on Dec. 6, as higher long-term interest rates have materially impacted the Canadian economy. The statement read:

“In Canada, economic growth stalled through the middle quarters of 2023. Real GDP contracted at a rate of 1.1% in the third quarter, following growth of 1.4% in the second quarter. Higher interest rates are clearly restraining spending: consumption growth in the last two quarters was close to zero, and business investment has been volatile but essentially flat over the past year.”

And with demand destruction poised to hit its neighbor next, the BoC added:

“In the United States, growth has been stronger than expected, led by robust consumer spending, but is likely to weaken in the months ahead as past policy rate increases work their way through the economy.”

So, while risk assets have celebrated this weakness, oil prices have run for cover. And with crude’s collapse likely to filter into other assets once they catch on, silver and mining stocks should be among the hardest hit when the drama unfolds. 

Finally, Walmart CEO Doug McMillon said that unpredictability could reign in 2024, even as deflation unfolds across the U.S.’ largest retailer. Thus, while securities are priced for a perfect landing, plenty of indicators signal a much different outcome.



Overall, silver’s strength is much more semblance than substance, as rate cuts typically occur when economic growth falters. And while investors assume they can skip the recession volatility, history suggests otherwise. As such, we believe assets like silver, the GDXJ ETF and the S&P 500 should face selling pressure in the months ahead. 

To avoid missing important inflection points, subscribe to our premium Gold Trading Alert. Our expert technical analysis has allowed us to profitably trade in and out of positions on several occasions and has resulted in an 11-trade winning streak. And with future volatility poised to create even more prosperous opportunities, there has never been a better time to become a member. 

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.


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