July 2023 - Week 2 Edition

Gold and Silver Strengthen

Gold has held up strongly while U.S. stocks and bonds vacillated wildly after two conflicting job reports last week. First, on Wednesday, July 5, the ADP private payroll totals reported strong job growth, which implied that the Fed would raise rates again in late July. That sent Treasury bond rates sharply higher and sent stocks down. Then, the Friday jobs report was much more downbeat, pushing stocks up at first, then further down at the close. Gold held firm and then rose $10 higher on Tuesday, July 11. On Wednesday morning, both gold and silver soared even higher due to a low Consumer Price Index report.

Gold and Silver Surge on a Relatively Low Consumer Price Index Report

Generally, you would think that gold would rise on reports of fast-rising inflation, as gold is a traditional “inflation hedge,” but Wednesday morning’s Consumer Price Index (CPI) for June came in slightly higher at a low 0.2%, after increasing just 0.1% in May. That caused gold to jump $20 per ounce immediately, from an opening of $1,933 to $1,953 per ounce.  Silver followed suit, rising from $23.20 to $24.00 per ounce on the opening.

Over the past 12 months, according to the Bureau of Labor Statistics report, the CPI has risen just 3%, which is getting close to the Federal Reserve’s target rate of 2%. That, in turn, indicates that the Fed may feel obligated to raise interest rates any further this year, or perhaps just once, not twice. Prior to this CPI release, the assumption was that the Fed would raise rates two or more times in the remainder of 2023.

Speaking at a conference in Madrid hosted by the Bank of Spain, Fed Chair Jerome Powell said last week that, “A strong majority of [Federal Open Market] committee participants expect that it will be appropriate to raise interest rates two or more times by the end of the year.” That came after the FOMC minutes, also released last week, only said that “some,” participants favored that policy. So, the Chairman was arguing for a more “hawkish” two or three rate increases going into the inflation releases this week.

Subtracting food and energy costs, the “core” CPI rose 0.2% in June, the smallest one-month increase in that index since August of 2021.  The biggest increase in the monthly CPI was the “shelter index,” which accounted for over 70% of the gain, rising 7.8% in the last year. This doesn’t make much sense, as home prices are declining and mortgage rates have dropped in the past year, so housing costs should be falling.

The Producer Price Index (PPI) will be released Thursday morning and it is generally much lower than the CPI since commodity prices have been deflationary in the first half of 2023. For a hint at what the PPI will say, the energy commodity component of the CPI has declined 26.8% in the last 12 months and energy will be a heavy component of the PPI. If the PPI number is low, gold may stage another surge.

Gold’s Long-Term Cycle Points to New Highs from 2023 Through 2026

The Aden Forecast, published by Pamela and Mary Anne Aden out of Costa Rica, has been a leading market forecast service since the early 1980s, covering all major markets. They have identified a long-term cycle in gold since gold and silver prices were set free of government control in the late 1960s.

In their latest edition (July 2023), the Adens identified gold market lows falling almost exactly every seven years in the new century (in 2001, then in November 2008, December 2015 and finally last November 2022.  In the late 1900s, they say, the gold market bottoms fell an average of once every eight years, in 1969, 1976, 1985 and 1992, making for a remarkably consistency over the past 55 years. 

The gold market peaks came about 15-16 years apart, in 1980, 1996, 2011 and, they say, 2026-27. In other words, the bullish cycle is about twice as long as the bottoming cycle, and it involves an opening decline (2011 to 2015 in the latest case, followed by an initial rise, through 2019 in this case, then a pullback, then a more explosive rise.  We are about to begin that final, more explosive two- to three-year rise, in their view.

Here is part of their summary in the July 2023 edition of Aden Forecast: “Since the latest 7-year low was last November, it means the obstacles are behind us and a bull market is poised to bloom in these upcoming years, and likely a major high could develop in the 2026-27 time period.”

Fundamentally, the Adens cite the rise in gold jewelry buying around the world, plus futures trading, and central bank buying: “China continues to buy gold for the seventh consecutive month. Since November, the People’s Bank of China has increased its gold reserves by 144 tonnes … while UAE’s gold reserves rose by 41% in 12 months.” (One tonne equals one metric ton, or 1,000 kilograms, or 2,205 pounds).

The Adens are bullish on silver, too: “Silver’s ongoing limited supply is about to face soaring demand from solar panel manufacturers. Solar alone is 12% of all silver demand and the forecasts show it will grow more each year. Silver is also an industrial metal. And with growing green energy, the expanding electronic industry, not to mention the ongoing infrastructure demand for the metals, this should give silver a huge rise. Silver is in a bull market and this year has essentially been a consolidating year…It has room to decline further, and it would still remain in a five-year uptrend. Silver rose above its 65-week moving average in March and it has stayed above it since then. This means silver will remain firm above $22…. If the $22 level holds, and silver closes well above $24.50, a renewed rise will be underway.”

The Adens recommend a 60% portfolio position in gold & silver, gold shares, energy and resources, with 25% in cash (U.S. dollars, Swiss francs and euros) and 15% in stocks. We wouldn’t go that far, but we recommend a 10% to 25% position in precious metals and rare coins for those with sufficient capital cushion and the patience to take a significant insurance position in risk-protecting assets like gold.

Based on this award-winning report, I strongly encourage you to call us today to add to your gold and silver bullion and rare coin positions in your portfolio.

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