Gold and silver

Gold

Ouch! Kevin Warsh’s musings at the Jackson Hole symposium left the impression that the Fed might hike interest rates. That he didn’t actually say that is irrelevant. The market perceived it as a possibility. As a result, gold tanked, stocks waffled downward, bond yields rose, and the US$ Index jumped higher. But a reminder that with $40 trillion in debt and interest payments on the debt eating up an increasing amount of the U.S. budget, gold still has only one way to go and that is up.

We can’t say that the end of the week drop for gold is over. We are now testing the breakout near $4,500. A break under $4,300 is of more concern. A break under $4,100 suggests new lows under $3,900. That goes for silver too, which so far is the only one that didn’t break out of its downtrend. A break under $58.35 suggests new lows below $54.74. Under $62.50 suggests lower. Obviously, the argument of further declines or new lows is over with new highs above $4,700 gold and $71 silver.

The gold stocks continue to hang tough. This past week gold fell 3.4%, silver dropped 4.3%, but the Gold Bugs Index (HUI) fell only 2.8% and the TSX Gold Index (TGD) dropped 2.2%. This outperformance by the gold stock indices suggests to us that this decline for gold and silver should be only temporary. We’d be more concerned if the gold stock indices fell more percentagewise than gold and silver, as that would suggest the gold stocks are leading. Gold stocks leading is what we normally see. That they didn’t lead we view as a positive. Both the HUI and the TGD have surpassed, albeit by not much, levels that could suggest new highs ahead. This could be merely a bump in the road.

Elsewhere, platinum joined the down move, off 3.3%, but palladium jumped, up 5.3%. Copper fell 0.5%, just off new all-time highs. Gold stocks have enjoyed a very strong month with the HUI up 35.9% so far and the TGD up 34.3%. At the recent highs the HUI was up 53.6% in August, the TGD up 50.9%. A record month for both indices. Gold stocks have been leading, which is what we’d expect. If they were not, we’d be concerned about the rally. The drop thus far is a setback, a correction after a strong move. Signs continue to be positive in the junior mining market as well. The TSX Venture Exchange has gained 17.8% in August and was up 20.5% at the recent highs. A reminder the CDNX is only about 50% mining stocks and not all of that are gold mining stocks. Many are metal stocks. Nonetheless, it’s all positive. The junior gold mining developers don’t usually start to move higher until after Labour Day.

Silver

Source: www.stockcharts.com

The currencies were universally down this past week, given the jump in the US$ Index that was up 0.8%. The euro fell 0.8%, the Swiss franc 1%, the pound sterling was down 0.8%, and the Japanese yen off 0.7%. A falling Japanese yen is not good as both the BOJ and the U.S. Treasury want it higher. Another intervention coming?

SPTGD

Source: www.stockcharts.com

Gold has entered a positive seasonal period. History suggests a high sometime in September or October, then another correction into December before a stronger seasonal period gets underway in January. One can’t quite take it to the bank. Only new highs will confirm we are indeed in a new up phase. Otherwise, all we can say about the current action is that it is a correction to the January/July down move. Once it tops, another down move might be expected to test the lows.

That said, our expectations are for higher gold prices. There is simply too much debt, not just in the U.S. but everywhere. Gold is the safe haven. It’s tangible. It’s indestructible. It has no liability. Bitcoin has also jumped higher, along with gold gaining 35% in August. But Bitcoin is not tangible. It can be destroyed, and as to liability, just ask those who lost their Bitcoin to hackers. For gold bugs, there is no comparison. Gold is real.

Bitcoin is illusion. Gold can’t be destroyed. Bitcoin can be hacked. It relies on codes on a computer and relies on computers and internet to move it. But yes, Bitcoin is limited as only 21 million coins exist and they are not expanding supply. Gold is still being found, but it is limited. All the gold that ever existed is still here, even if it fell to the bottom of the ocean.

Read the FULL report here: Technical Scoop: Stagflation Possible, Rate Fall, Temporary Whack

Disclaimer

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