Gold 2254 in Year 2022

Welcome to next year: ’tis here.

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In settling yesterday (Friday) at 1831, Gold’s five-day gain was +20 points, or more meaningfully just +1.1%, ranking it 11th amongst the 18 “Finale Rallies” years this 21st century-to-date. (Recall from last week’s piece that ’04, ’11 and ’15 were instead finales down into valleys).

But that’s all quite immaterial really given comparable respect to Gold missing our forecast high for 2401 in 2021: Gold never got beyond 1963 (06 January). To reprove ourselves in the words of Dr. Kananga (aka “Mr. Big”) from “Live and Let Die” –[Eon/UA, ’73]:

“I gave you every break possible. You had a chance. You weren’t even close.”

  • The best “break possible” was the U.S. money supply (“M2” basis) increasing from $19.4 trillion at year-end 2020 to $21.8 trillion as of yesterday, (+12.4%). Not only did Gold balk, but for the year on balance, price instead went backward from 1902 at year-end 2020 to 1831 yesterday (-3.7%).
  • We “had a chance” as with flawlessly favourable fundamentals, the predicted 2401 level was merely the extrapolation of 2020’s linear regression trendline (per weekly closes) through 2021. But repeat same for 2022 and — given Gold’s 2021 trend was down — ‘twould find price’s extreme for this new year lower than higher. Bereft of all common sense, that.
  • Thus we “weren’t even close.” Period. Say no more. We can only scrape what remaining credibility we might maintain off the floor and look to what is now 2022.

Accordingly, per this missive’s title and its opening Gold Scoreboard, we’re going with 2254 as Gold’s high for 2022. How did we arrive at that price? You website followers out there may be familiar with our Market Ranges page, which each day updates our EDTR (“expected daily trading range”) for the following trading day. At times, too, we’ve assessed same for weekly and month measures.

2254 is borne of the yearly measure on a percentage basis: Gold’s EYTR for 2022 is 30.4%, (which for you WestPalmBeachers down there means the expected distance from Gold’s 2022 low to its high). A derivative of the EYTR is the realistic assumption that Gold shan’t simply go straight up (which if it did would bring us 2387 this year). Rather, should Gold put in an up year for 2022, 23.2% (the expected maximum percentage up move from 1831 with the overall 30.4% trading range) puts the projected high at 2254.

Thus in the following graphic, here is where 2254 appears above (still way above) Gold’s weekly bars and parabolic trends from a year ago-to-date. 2021 was a year wherein Gold couldn’t find its way out of a paper bag despite Debased currency wreckage, Treasury insolvency to meet Debt service, and non-covered Derivatives run amok. The 3Ds in a rotted nutshell, right there … Yuck!

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But what shall it take to wrest Gold out of its high-1700s to low-1800s malaise? Yes, obviously Gold’s foundational fundamentals support price above 4000 right now, a valuation even deemed modest by some hardcore analysts; (we just do the honest Debasement math). Not helping is the metastasizing notion of “Manipulation” put upon price by entities with sufficiently margined futures accounts to measuredly repel upside movement time and again.

‘Course a sovereign bank can give “them of the M” a run for their money; add to that the buying participation of large institutional funds and Gold can be off to races really fast. Rather than Gold getting a lurch by some geopolitical event (following which price always sags back from whence it came), large scale buyers shall ultimately put price right — and right quick at that — upon real erosion of currency-based wealth. And were that to occur this year, our 2254 can well appear as a modest speck in the rear-view mirror. Stay tuned…

Meanwhile comes our high-level mix of precious metals-based equities. By their percentage tracks starting from this time a year ago, the mild-standout is Franco-Nevada (FNV) +10% along with also-positive Newmont (NEM) +4%. But then ’tis nothing but red with Gold itself -4%, the VanEck Vectors Gold Miners exchange-traded fund (GDX) -11%, the Global X Silver Miners exchange-traded fund (SIL) -20%, Agnico Eagle Mines (AEM) -25%, and from worst-to-first-and-back-to-worst Pan American Silver (PAAS) -28%. ‘Course from the “Eternal Hope Dept.”

We reprise a savvy trader’s quip from decades ago: “Ya can’t sell ’em on the way up if ya didn’t buy ’em on the way down!” And featuring Stoopid and Smart, this display definitely depicts “down”:

010122_gold_gdx_nem_aem_fnv_sil_paas

For the BEGOS Markets as a whole in 2021, the economically-driven components skīed whilst the safe-havens died. Per our final percentage standings for 2021, Oil led from the get-go and never looked back, the +55.8% gain its largest since 2007. The ever-earnings-ignorant S&P 500 scored a podium finish, as did Copper. Then at the dividing line appropriately is the Dollar with the +6.4% gain seemingly impossible given its massive Debasement: that’s called “market dislocation on steroids”. Finally in the red are the safe havens after two fairly solid prior years:

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Now for the past year’s full look at the Economic Barometer: when you go from “no economy” (2020) to “full economy” (2021), you look really good. However, recall our emphasizing through 2020 that the private sector naturally negotiated Covid’s swerving curves: folks found their way through the friction-filled fray. But at the end of the day, 2021 finished with the Baro at a better than three-year oscillative high, the S&P itself making an all-time high at 4809 on 30 December. Lookin’ great there, Joey Baby!

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Still, from the “Cooler Heads Prevail Dept.” Bill Stromberg (T. Rowe Price Prez/CEO) pointed to investors being in “free-form risk-taking”, the FinTimes going on to further note that “investors can be right for the wrong reasons.” That’s responsible reporting, the antithesis of which came from Dow Jones Newswires referring to corporate profits for the past two years as “Rip-roaring”. Really? Query: If “Rip-roaring”, how then can one account for our “live” reading of the S&P 500’s price/earnings ratio having climbed from 39.0x at the end of 2019 two years hence to now 49.5x?

“Because of the commensurate rise in stock prices, mmb. Happy New Year, by the way.”

To you as well, faithful Squire. And your having demonstrated four-syllable wording in commencing the new year is impressive. ‘Course, ’tis way beyond “commensurate”; we see it as “catastrophic” … rip-roaringly so when it doth go.

As to the now, what is on the upside “Go!” is the linear regression trend of every BEGOS Market save for the Bond. Here are the last 21-days (one month) for each of them as we go ’round the horn, money pouring into “everything” except debt, (poor TreaSec Yellen). The baby blue dots depict the day-to-day consistency of the grey trendlines:

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Next we’ve the 10-day Market Profiles for Gold on the left and Silver on the right. Simply stated, life again at the top looks good, and more so given price being so materially undervalued. Today at 1831, Gold is priced at just 45% of its Debasement valuation of 4070. The Gold/Silver ratio is today 78.4x, but the average from 2001-to-date is 66.5x. Thus doing the simple arithmetic: were Gold today actually at its proper valuation of 4070 and the G/S ratio at its average of 66.5x, the price of Silver (today 23.36) would be 162% higher at 61.20!

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And it being month-end, moreover year-end, here is the Gold Structure monthly bars graphic across the past 11 years, our 2022 forecast high of 2254 ratcheted down from last year’s 2401 target as the battle across The Northern Front for the Final Frontier furiously continues, purportedly against the forces of “The M Word” crowd:

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Now as a closing bonus, here we’ve the annual closing price of Gold across the past 51 years, from 35 then to 1831 today, (thank you, Dick):

010122_gold_annual_closes

2021 is done with 2022 right on cue. We expect volatility to remain rather rampant throughout the year across the BEGOS Markets. Therein, clearly the S&P 500 is beyond due for another major wallop similar to those during 2001-2002 and 2008-2009 for the most basic of reasons: the money isn’t there. Indeed to update a favoured stat from 2021: at yesterday’s close, the market capitalization of the S&P 500 alone is $42.0 trillion; the StateSide liquid money supply (M2) is “only” $21.8 trillion; (globally ’tis rounded at $40 trillion).

So how much shall Stoopid actually receive when Stoopid finally sells? On the other hand, Gold today at 1831 is “worth” (by tonnage) $13.1 trillion … but at proper valuation (4070) ’tis worth $29.2 trillion. “Hey Stoopid! Got Gold???”

Happy New Year and Cheers!

www.deMeadville.com

Gold’s Gains Get Marred as Biden Bonks Brainard

  • Indeed literally at the top: the above Gold Scoreboard displays valuation having crossed above the $4,000/oz. threshold; and yet you can own Gold for a fraction of that at $1,792/oz given yesterday’s (Friday’s) settle; “Got Gold?”
  • Both wrong — and moreover shocked — we were over Biden’s handlers writing “Jerome Powell” rather than “Lael Brainard” on the FedHead index card for the President to read aloud this past Monday; a selection 180° anti-correlative with the Administration’s endless money ‘n climate change modus operandi;
  • The emphasis of last week’s piece was for a near-term technical pullback in Gold’s price, wherein ’twas stated “…the 1800s … appear safe…”; rather, this past week’s low was 1777, the “Powell” selection being the fundamental impetus justifying that technical condition;
  • Prior to The WHO’s (not the band, but the U.N. organization) effort to maintain its raison d’être with Friday’s “Oh my! Omicron!” scare, we were prepared to state that “Powell” would push for a FedFunds rate hike in the 26 January Policy Statement; but if this instead is “The Beginning of the End, Part Deux”, shall they ever raise again?
  • And “Oh my! Omicron!” in turn is credited as the catalytical scapegoat for the S&P 500’s -2.3% loss on Friday, (recall the single-day COVID losses in 2020 were several times that amount); yet still not a FinMedia peep about the S&P’s earnings levels simply not being supportive of the Index: our “live” P/E = 49.3x; its lifetime median = 20.4x; (ready for the next means reversion?)

Now: but for two trading day’s remaining in November’s balance, let’s go with the following usual month-end graphic, albeit both Monday and Tuesday can well blow us far from Kansas, Toto. Thus with that in mind and seat belts fastened, here are the BEGOS Markets Standings year-to-date. The economically-driven markets dominate the top three podium spots whilst the safe havens remain the also-rans. “Everything’s great!” right?

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Specific to Gold, as above shown -5.7% to this point in 2021, here below we’ve the weekly bars and parabolic trends, the ongoing blue-dotted Long stance now four weeks in duration. As measured from a year ago, this past week was Gold’s third worst performance on both a points and percentage loss basis. A bit of a heartbreaker, that. Even as “Oh my! Omicron!” is wild-card bullish for Gold; yet “Powell” is the more hawkish-to-be FedHead selection (bearish, but not really) for Gold:

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“You’re saying that because rising rates have actually found Gold to rise too, right, mmb?”

Spot on there, Squire. Lest we forget, from 2004-2006 the FedFunds rate rose from 1% to 5% and Gold from 380 to 710. Further, to reiterate, Gold by U.S. monetary debasement (wildly bullish) is today worth the Scoreboard-noted 4001.

Either way, Gold’s year-over-year percentage track has been, on balance, sideways. Which in turn really emphasizes the “Live by the miners, Die by the miners” nature of precious metals-based equities as is starkly made obvious here:

271121_gold_gdx_nem_aem_fnv_sil_paas

For the record from this time a year ago, as positive we’ve only Franco-Nevada (FNV) +5%, followed in decline by Gold itself -1%, Newmont (NEM) -3%, the Global X Silver Miners exchange-traded fund (SIL) -5%, the VanEck Vectors Gold Miners exchange-traded fund (GDX) -6%, Pan American Silver (PAAS) -12%, and Agnico Eagle Mines (AEM) -19%. (Note to those of you fortunate enough to be scoring at home: the U.S. Money Supply for the same period is +12% versus the supply of Gold just +1% … Pssst: again, “Got Gold?”).

As for our Economic Barometer, the past week’s slate of incoming metrics found but one which was negative: October’s Durable Orders (itself a volatile series). The balance of the bunch had improvements including Home Sales (both New and Existing), plus Personal Income and Spending.

But the “turn a blind eye to it” Q3 Chain Deflator was revised upward: that’s the party pooper, further highlighted by the Fed’s favourite gauge of inflation — Core Personal Consumption Expenditures — doubling its October growth over that for September. “Hey Jay! Raise ’em 26 January anyway?” Here’s the Baro along with the wee pullback in the S&P:

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Next as we go ’round the horn with the BEGOS Markets, their respective rightmost daily bars are indicative of Friday’s “Oh my! Omicron!” effect. And note from the safe haven standpoint the net comparable under-performance of the precious metals vis-à-vis the leaps by the Bond, Euro and Swiss Franc. As well, the three year-to-late leaders in the aforeshown BEGOS Markets Standings turned tail toward butt ugly, namely Oil, Copper and the S&P 500. And with all those baby-blue dots of trend consistency on the skids, a Santa Claus rally doesn’t at present appear in the bids:

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As for the 10-day Market Profiles for the precious metals, be it for Gold on the left or Silver on the right, from each one’s height, they now hardly look right. Indeed, the pick of “Powell” thus far trumps any Gold-positive fear of “Oh my! Omicron!”:

271121_gold_silver_profiles

And thus Gold for November has gone from stud to dud, the rightmost monthly bar below barely green by a nub. Gold’s trying to re-secure The Northern Front remains a Battle Royale:

271121_gold_structure

So there it all is. Gold was on a November roll — up some 95 points (+5.3%) — just over a week ago, albeit with momentum already perceptively slowing, our last missive showing. Then Monday came Biden’s shocking bonking of “Brainard” toward maintaining “Powell” as FedHead, and from the month’s high of 1880, Gold post-bonk was swiftly down over 100 points. Even as a safe-haven following Friday’s WHO surprise “Oh my! Omicron!” cry, Gold bounced a bit, but failed to hold grip, the question now being: “Does Gold further slip?” Regardless, we answer: “Just buy Gold’s dip!”

Cheers!

www.deMeadville.com

The Silver Bull is Not Transitory

At its latest FOMC meeting the Fed naturally decided to keep the fed funds rate target at 0.25%.

It also decided not to mess with the $120 billion monthly bond buying program to help “support the flow of credit to households and businesses.” Par for the course.

Meanwhile inflation numbers of the previous four months have been anything but typical. The Fed’s favored Personal Consumption Expenditures Price Index has soared: in February it was 1.6%, March 2.4%, April 3.6% and in May 3.9%.

But headline CPI recently came in at 5%, reaching a 10-year high.

These recent months of elevated and increasing prices may have been exacerbated by price plunges due to the COVID-19 pandemic. But those were for a few months, and their effects should already have dissipated. And yet, they haven’t.

In fact core inflation, which excludes volatile energy and food prices, recently touched 3.8%, its highest in 30 years.

The Fed is looking increasingly wrong in its assessment that the inflation numbers we’ve been seeing are transitory. That means investors would do well to seek shelter from inflation-protection assets. And as I’ll show, for multiple reasons, chief among them is silver.

Silver is Cheap Vs. Stocks

It’s always informative, and sometimes eye-opening, to look at asset prices in relation to other assets. It usually provides good perspective on relative pricing. In that vein, there’s little more surprising than to see just how cheap silver remains relative to the S&P 500 ratio.

The following chart shows the long-term ratio of silver to the S&P 500.

It’s currently sitting near its 50-year lows. For what it’s worth, silver would have to rise by a factor of 63 times just to match its level at its $50 peak in 1980. While this might sound sensational, my point is these conditions have existed in the past. This alone suggests explosive potential upside as the stock market matures and likely corrects, while silver continues to climb.

Physical Silver Demand Remains Elevated

Of course, protection from inflation and uncertainty are great reasons to buy and own silver. And as I described above, inflation appears to be coming back with a vengeance. In any case, many investors are hedging against the risk that it becomes entrenched.

In the past 15 months, prices for physical silver are higher than normal. That’s because demand for physical products has remained elevated, leading to sustained high premiums over the spot price. And that’s if you can even get your hands on them. Many of the most popular coins and bars have been persistently out of stock. Premiums are typically 40% or higher, which is nearly triple normal levels.

What’s more, in its recent World Silver Survey 2021, the Silver Institute is forecasting continued strength this year. They expect physical demand to climb by 26% after a very strong 2020. In fact, they foresee overall demand, from all sectors, to be up by 15%, nearly doubling supply growth of 8%.

One area of note is demand from flexible electronics. The Silver Institute indicates demand for silver in printed and flexible electronics is about 48 million ounces annually. They forecast demand will rise to about 74 million ounces in 2030, absorbing 615 million ounces of silver in this decade alone.

As technology becomes increasingly commonplace in our daily lives the world over, printed and flexible electronics are likely to play a bigger role. Consider that wearable electronics like smartwatches, appliances, medical devices and a host of internet-connected devices are exploding in use. Sensors for light, motion, temperature, moisture and motion all make use of printed and flexible electronics.

So, it’s natural that the electronics subsector promises to be the fastest growing demand for industrial silver usage.

Silver’s Seasonal Outlook is Bullish

Another indicator that now may be a great time to be bullish on silver is its seasonal trend.

The following is a 45-year chart, from 1975 to 2020, which averages the annual silver price tendency.

From this, it’s quite clear that silver tends to mark a mid-year low right at the end of June. And from that point on, on average, the silver price enjoys a strong third quarter.

How to Play Silver Now

In my view a basket of silver stocks is a great way to approach the high potential of this sector right now. One of my favorite options to accomplish this is the ETFMG Prime Junior Silver Miners ETF (NYSE:SILJ). With over 1 billion in assets and average daily volume over 1.5 million shares, SILJ offer plenty of liquidity to enter and exit at will.

Its top ten holdings represent over 63% of overall assets. And these include Hecla Mining (NYSE:HL), Pan American Silver (TSX:PAAS; Nasdaq:PAAS), First Majestic Silver (TSX:FR; NYSE:AG), MAG Silver (TSX:MAG; NYSE:MAG), Yamana Gold (TSX:YRI; NYSE:AUY), Hochschild Mining (LSE:HOC), SSR Mining (TSX:SSRM; Nasdaq: SSRM), SilverCrest Metals (TSX:SIL; NYSE:SILV), Turquoise Hill (TSX:TRQ; NYSE:TRQ), and Endeavour Silver (TSX:EXK; NYSE:EXK).

In the end, the Fed is all about managing expectations, not about tell us what we should really expect. Therefore, actively hedging for inflation with a silver miners ETF such as SILJ looks like a great option with a lot of potential upside.

One thing is certain; silver is in the early days of a massive bull market. That’s why in the Silver Stock Investor newsletter I provide my outlook on which silver stocks have the best prospects as this bull market progresses. One stock in the portfolio is up 50%, and several more are up over 30% since the start of 2021 alone. Many offer 5x to 10x return potential in just the next few years, especially as silver heats up.

Remember, silver’s been rising on balance for the last couple of years, and looks primed to rally strongly on the back of multiple drivers.

The key takeaway is that silver’s bull market is anything but transitory.

For a look at all of today’s economic events, check out our economic calendar.

3 Silver Stocks with a Shiny Outlook

Silver often plays second fiddle to its glittering counterpart gold. However, the grey metal offers investors an attractive alternative in the year ahead, with the commodity well positioned to benefit from its store of value characteristics and improving industrial demand. “Investors are already starting to see that inflation is out there, and that’s why I like hard-assets so much,” said Crescat Capital partner Tavi Costa, per Kitco.com. “Gold looks really cheap. Silver looks really, really cheap,” he added.

Below, we take a closer look at three silver mining stocks and use technical analysis to identify important trading levels worth watching.

Pan American Silver Corp.

Vancouver-based Pan American Silver Corp. (PAAS) operates silver mines in Canada, Mexico, Peru, Argentina, and Bolivia. In its latest quarter, the silver mining giant posted earnings of 57 cents per share on revenues of $430.46 million. Both metrics came in ahead of Wall Street forecasts and grew 73% and 6.4% YoY, respectively. As of Feb. 18, 2021, Pan American Silver Corp. stock has a market capitalization of $6.73 billion, and trades nearly 8% lower on the year. Investors also receive a 0.86% dividend yield.

Chart-wise, the stock price trades within a seven-month range. Pullbacks to the pattern’s lower trendline provide high probability entry points.

Fortuna Silver Mines Inc.

With a market value exceeding $1.4 billion, Fortuna Silver Mines Inc. (FSM) is a Canadian-based precious metals producer with significant silver mining assets in Peru and Mexico. The company, which does not currently issue a dividend, grew its bottom line 350% in the third-quarter (Q3) from a year earlier, posting earnings per share (EPS) of 9 cents during the period. Through Wednesday’s close, Fortuna Silver Mines stock trades 7.77% lower year to date (YTD). However, it has gained over 100% in the past 12 months.

From a technical perspective, the price has formed a multi-month broadening wedge. Traders should look for retracement entries to the pattern’s lower trendline that finds a confluence of support from the 200-day SMA.

Endeavour Silver Corp.

Endeavour Silver Corp. (EXK) conducts silver mining operations through three high-grade, underground, silver-gold mines in Mexico. Analysts expect the Canadian-based silver miner to disclose a profit of 6 cents per share in the current quarter and 19 cents a share for full-year 2021. Moreover, brokerage coverage remains mostly favorable, with the shares receiving 4 ‘Buy’ ratings and 6 ‘Hold’ ratings. Endeavor Silver Corp. stock has a market cap of $921.21 million and trades 16% higher YTD.

From a charting standpoint, traders should watch for “buy the dip” opportunities near a long-term uptrend line that extends back to the March 2020 pandemic-induced low.

For a look at today’s earnings schedule, check out our earnings calendar.