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Precious Metals Update: S&P Hauls, Gold Stalls, Silver Falls

By Mark Mead BaillieCommoditiesJul 26, 2021 12:29AM ET
www.investing.com/analysis/precious-metals-update-sp-hauls-gold-stalls-silver-falls-200593424
Precious Metals Update: S&P Hauls, Gold Stalls, Silver Falls
By Mark Mead Baillie   |  Jul 26, 2021 12:29AM ET
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Gold Scoreboard
Gold Scoreboard

Opening note: In keeping with our recent query/quip "Has the S&P crashed yet?", on Friday we texted our great and good colleague here as follows: "S&P over 4400," to which came the response: "Yes I saw... my brain stopped functioning."

Indeed, the function of stock market value has also stopped. Our honestly-calculated, cap-weighted "live" price/earnings ratio of the S&P 500 is now 56.3x; (we've as well seen 46.9x depending upon what "they're" not counting). But the point is: the S&P 500's average p/e since its inception back in 1957 is 19.2x. And given that the p/e always reverts to its mean, a two-thirds price "correction" is obviously in the offing. (Whether 'tis a lingering "Gentleman's Crash" or simply three consecutive "limit-suspended" sessions of -900 S&P points/day—equivalent in toto to some -21,000 "Dow" points—remains to be seen).

"But can you really say 'obviously' there, mmb?"

Absolutely, Squire. 19 years ago the S&P concluded a correction of more than 50%. Then seven years later it again finished another correction of more than 50%. So for this next one, what's an additional dozen or so percentage points totaling some 67%, eh?

The most interesting bit shall be how "they" couch the crash's catalyst (the truth being lack of earnings). We 'spect they'll condemn a re-emergence of COVID-and-variants combined with the prior StateSide Administration's having allowed for too much real economic improvement by enabling the private sector to manage more of its own earnings. Regardless: stock market negatives are as numerous as Gold positives. And you regular readers know them well. Thus without detailing them ad nausea, 'tis now merely a matter of flipping the sentiment switch:

S&P Negatives/Gold Positives
S&P Negatives/Gold Positives

So to Gold we go: And as we wrote for the precious metals a week ago: "...No, we don't expect Gold to increase every week as it has done for the past four..." and that "...Silver [is] looking to run out of puff unless she can quickly get off her duff..."

And so it came to pass amidst the S&P's haul that Gold's stall found its price settle out the week on Friday at 1802 for a mild five-day loss of 0.6%. But Silver's fall put her settle at 25.24 for a 1.8% loss, a sufficient-enough deviation to further the Gold/Silver ratio back to its highest level (72.4x mid-week) since January. The good news there for Silver is that Copper on Friday took off like a rocket, +2.7% (its largest one-day gain since 27 May): this ought allow the white metal to industrially catch up to the red metal and preciously catch up to the yellow metal. "No excuses now, Sister Silver!"

'Course as we oft state with respect to "change being an illusion whereas price is the truth", were Gold rightly today at the above Scoreboard valuation of 3872, applying the millennium-to-date average Gold/Silver ratio of 66.3x would place Silver now at 58.40. (Then sprinkle that with a little miners' leverage...)

Thus with the S&P horribly overdue to dive—and Gold and Silver amazingly due to thrive—if you own the metals you'll be glad (versus owning the S&P leaving you sad and your having to go back to work, lad).

As for the recent "Dollar strength" said to be stalling Gold's show, it hasn't really, you know:

Gold Vs Dollar
Gold Vs Dollar

Next in turning to Gold's weekly bars from one year ago-to-date, the label stating "2021 Forecast High: 2401" clearly is way up there. Without restating all of the historical examples of Gold's having traveled that far within the like balance of time left for this year, price thus remains provenly capable of getting there, albeit 'tis going to take a bit of fundamental scare. For the present, hardly is Gold caving within the context of the present red-dotted parabolic Short trend. Moreover, with August on the horizon, that month has finished higher for Gold in eight of the past 11 years:

Gold Weekly Bars And Parabolic Trends
Gold Weekly Bars And Parabolic Trends

Now to some real switch-flipping material: the Economic Barometer. This past Monday, Dow Jones Newswires referred to the U.S. economy as "red-hot." What do you think?

Economic Barometer
Economic Barometer

To be fair contextually, the "news" service went on to note that economists sense Q2 was the peak for the rate of post-COVID growth. To be sure, the Conference Board's lagging report of Leading Indicators nearly halved in June to 0.7% from May's 1.2% pace. However, 'twas reported as well that the COVID variant dubbed "Delta" shan't "Dent Robust U.S. Recovery."

But such is not the case on this side of the pond, with outside masque requirements here resuming today and restaurants again being limited to locals with health passes. (Cue W.C. Fields: "I went to Monte-Carlo, but it was closed.") More broadly, the European Central Bank firmly is sticking to its negative rates policy. Is it any wonder the Bond's price (below left) has been exploding and the Euro (below right) imploding?

Bond Vs Euro Dots
Bond Vs Euro Dots

So much for rising interest rates, (not). No surprise (right?) the S&P on Friday at 4412 is an all-time closing high. (At its aforementioned p/e average, 'twould instead be 1505 today, just in case you're scoring—indeed preparing—at home).

'Course, 'tis high-times we anticipate for Gold in spite of this recent week's breather. That noted, Gold's now-declining baby blue dots below on the left are some cause for near-term concern, although we see structural support from 1796-1750. Still on the right in the 10-day Market Profile, there is some overhead trading resistance per the price labels:

Gold Dots Profile
Gold Dots Profile

Certainly Silver's picture has been a bit weaker than that for Gold, again the noted Gold/Silver ratio having in turn risen. Below is her like two-panel graphic. But if Copper continues to firm and the Econ Baro continues to infirm, higher Silver we shall soon affirm:

Silver Dots Profile
Silver Dots Profile

So there we are for this week's missive. Yet what does next week bring? 13 incoming metrics for the Econ Baro, plus the next policy statement from the Federal Open Market Committee. We again ask: shall there finally be dissent amongst the ranks? But wait, there's more: seems most of the cash in the StateSide government's terribly crippled piggy bank has been shaken out ... and no more borrowing is allowed effective a week Sunday (01 August)! Uh-oh... We opened with a query/quip; let's end with our most basic one: "Got Gold???"

Precious Metals Update: S&P Hauls, Gold Stalls, Silver Falls
 

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Precious Metals Update: S&P Hauls, Gold Stalls, Silver Falls

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Comments (4)
Raju Gogara
Raju Gogara Jul 29, 2021 1:15AM ET
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good
Todd Holaday
Todd Holaday Jul 26, 2021 8:26PM ET
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What “they’re” not counting is likely TSLA’s 648.
Timothy Goodson
Timothy Goodson Jul 26, 2021 1:57AM ET
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TLDR: buy Silver
Leon Van Dyk
Leon Van Dyk Jul 26, 2021 1:28AM ET
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👍👍
 
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