Yesterday, the price of silver closed above $21.00 an ounce and gold also had a big rally day. Both of these daily boosts are coming after Friday’s big rally too. It’s a rally developing across the board in commodities and commodity related stocks. Take a look at the silver chart.
Silver acts as a bellwether for mining stocks and speculative action in the commodities markets. When silver broke down below $21.00 an ounce in June it was a big warning sign for both, and signaled that liquidity was likely to completely vanish from the junior mining stocks, which it did. Now that silver closed back above $21.00 an ounce it is giving a green buy signal.
After yesterday’s close, I went and looked at the news stories for an explanation for the strong moves. On Friday the story was “China reopening,” but on Saturday Chinese health officials put that rumor to rest. On Tuesday, Bitcoin blew up again as some weird alt-coin melted down and the news reported that could have prompted crypto players to move money into gold for safety. I doubt this is the case, because the average crypto account is really small. Crypto people are not sophisticated investors. They are more like slot machine players or Powerball ticket buyers, people trying to get rich quick instead of building wealth overtime.
What is important when it comes to gold and silver is the US dollar. And the US dollar appears to be now forming a top.
The US dollar rallied when the Federal Reserve began to raise interest rates at a faster pace than other central banks around the world. Now, though, the Fed is setting itself up to scale back the size of its future rate hikes, while the ECB and UK central banks are going to start to catch up to them. That poses a problem for the US dollar.
This is also happening without inflation falling all year at all.
Oh, maybe this week’s CPI will come in at 7.9% instead of last month’s 8.2% reading, but that hardly represents the defeat of inflation.
When bonds are getting crushed by inflation, gold and silver are the answer and a falling US dollar will make that obvious to sophisticated investors, because Bitcoin and crypto offer NOTHING for these problems.
Also, as I wrote last week, gold is less volatile than the US stock market and has actually been outperforming the S&P 500 all year.
To beat the market you want to be in those things beating the market.
The GLD/SPY relative strength ratio shows everyone that can see it that gold is something they need to be involved with and now silver has given a green light for metals bulls.
Charts like this is are not in Robinhood or crypto apps and why those traders remain oblivious to what has been happening in the markets all year.
-Mike
