Kitco Commentaries | Opinions, Ideas and Markets Talk

Featuring views and opinions written by market professionals, not staff journalists.

First we start with our title's last word: "recession". If you do the math and/or  are a regular reader of The Gold Update, you well-understand that the U.S.  Gross Domestic Product ex-inflation just recorded its fourth consecutive quarter  of shrinkage. Or inclusive of inflation as is the standardized measurement, a  second consecutive quarter of shrinkage has just been recorded, which by long running dictum establishes a recession as being in force, six months after the  fact. 

This second consecutive quarter of shrinkage having been clearly expected given  our Economic Barometer being in full plunge -- toward saving face -- the  StateSide government, investment banks and FinMedia skirted 'round 

Thursday's -0.9% Q2 GDP report by redefining if not outright denying 

"recession". Here are a few choosings of such high-level musings: 

■ "We’re not going to be in a recession", U.S. President Joseph Robinette Biden  Jr., 25 July; 

■ "We're not yet in that recession-type scenario", Elyse Ausenbaugh, JPM, 28  July; 

■ "Are we in a recession? Yes. No. Maybe.", Allison Morrow, CNN, 29 July.  REALLY?

Not only is the recession ongoing, but by the above Barometer, the underlying  economic foundation for Q2 was weaker than 'twas for Q1. But as GDP is not so  much calculated using specific metrics as it is a "throw it up on the side of the  barn" summation for a quarter's value of goods and services, the GDP refutes  the depth of the ongoing reality. And as is clear in the graphic, Wall Street as  measured by the S&P 500 (red line) is obviously siding with the "milder" GDP  shrinkage along with the "redefining" of recession rather than with truth of the  floundering economy (blue line). 

Indeed we oft wonder if the six-figure folks at the banks actually do any honest  economic analysis. The optics are that they do not, instead choosing to parrot  one another with what they see on TV. (Easy money if you can dumb yourself  down enough to get the job). Whereas here, we've been pointing out for months that the U.S. economy has been shrinking (simply because we do the math),  whilst much of the balance of the bunch prefer to swim in da Nile. ('Course, any  threat to their fee income is verboten!) 

And as for the ongoing Q2 Earnings Season, the S&P 500 is on track toward  recording its sixth-worse quarter (by year-over-year comparison) in at least the  past 21 quarters: which is why the "live" P/E is a lofty 33.3x ... which in ironic  turn is 33% above the lifetime average price/earnings ratio of 22.3x. "Bear" in  mind as well within this S&P "correction" that 3600-3200 structural support has  yet to be tested. 

"But mmb, everybody's saying the bottom is in..."

And let them so say, Squire, for without "everybody" there's no one to take the  other side of trade.

As for Gold's latent price accession into economic recession, 'twas a robust week  for the yellow metal. Inclusive of +18 points of price premium (as volume rolled  from the August contract into that for December), Gold scored a net weekly gain 

of +3.3% (+53 points). By percentage -- even without the added premium --  'twas Gold' best weekly gain since that ending 04 March. Moreover, price is  finally knocking on the red-dot door to flip the weekly parabolic trend from Short  to Long: 

And whilst we've been most fortunate with some near-term calls (suggesting the  precise 1678 low two weeks in advance, and then a week ago suggesting this  past week's precise 1785 high as a near-term target), we remain far off base  toward reaching our 2254 forecast high for this year, albeit our near-term "Hello  1800!" looks likely to pan out. Gold having settled yesterday (Friday) at 1783  means a leap from here of +26% is requisite within just five months (107  trading days) to hit the 2254 target. Such percentage increase within same  timeframe did happen in and around 2005, 2006, 2007, 2008, 2009, 2011 and  2020, just in case you're scoring at home. (Yeah, we know, the "M Word" crowd

will be out to quell it, lest they themselves be quelled as currency faith  dissipates: history does have a hankerin' to repeat itself). 

Meanwhile, year-over-year we also go for Gold along with several of its key  equity measures. Whilst all by their percentage tracks are negative, the troops  are now trying to turn the corner, albeit from this time a year ago we've Gold  itself -2%, Franco-Nevada (FNV) -20%, the VanEck Vectors Gold Miners  exchange-traded fund (GDX) -25%, Newmont (NEM) and Pan American Silver  (PAAS) both -28%, Agnico Eagle Mines (AEM) -34% and the Global X Silver  Miners exchange-traded fund (SIL) -38%. Up or down, you can really see the  leverage of the equities-to-Gold herein: 

As brutally low as remains the price of Gold (1783 today versus the Scoreboard  valuation of 4021), the yellow metal still has a place on the podium as we next  see in the year-to-date percentage performances of the BEGOS Markets, with  Big Oil remaining the Big Winner. And is not said that last-place Copper  supposedly leads the economy, (hint-hint, nudge-nudge, wink-wink)?

As for their past 21 trading days (one month), here we go 'round the horn for  each BEGOS component with its respective grey linear regression trendline and  baby blue dots of consistency thereto. Gold's Friday bar gap is indicative of the  +18 point price premium as December replaced August for "front month":

The precious metals' 10-day Market Profiles reveal prices' breaking out to the  upside, Gold on the left having expanded from the 1740s up into the 1780s and  Silver on the right moving up a full point from the 19s to settle above 20 for the  first time since 30 June. Indeed, Sister Silver's gain for the week was a full  +10%, in turn knocking down the Gold/Silver ratio from 93.3x to 87.7x, still well  above the century-to-date average of 66.9x, (by which measure prices Sister  Silver at 26.65 rather than at her lowly 20.34):

Further, it being month-end, here we've Gold's Structure by the monthly bars  across the past 11 years. (Caution is advised in reviewing this chart, for reliving  The Northern Front time and again can elicit both a headache and thigh rash):

At least Gold has recovered to our call for 1785, (which ain't sayin' much);  however as was also written a week ago "...what had been Gold's 1854-1779  support zone mirrors into the 1779-1854 resistance zone..." Thus from here  'twill be the battle of fundamental push versus the "M Word" crowd set to keep  Gold on its tush. Rather confounding stuff, as are these three closing 

■ There is wide-spread consensus that the Federal Reserve shall continue to  aggressively raise rates into the recession only to revert to rate cutting come  2023. Our recommendation is to take the Green route in saving the Planet's  fragile supply of energy by simply shuttering the Eccles Building for a year given  'tis back to here the Fed would otherwise ultimately steer. 

■ Dow Jones Newswires this past week reported that "Rich Americans Keep  Borrowing, Defying Economic Gloom." That aligns nicely with Squire's noting

earlier that "...everybody's saying the bottom is in..." Be mindful of massive  margin calls when it all goes wrong. 

■ Speaking of which, the International Monetary Fund has again just notched  down their forecast for global growth; (we assume this is ex-StateSide, it  already being well into a state of shrinkage). The IMF further couvert son  derrière in warning of even worse outcomes. Add to that more broadly the  Congressional Budget Office's expectations for increasing budget shortfalls, in  turn breeding far higher levels of debt levels over the next 30 years. (That's one  heckova crystal ball there). Moreover, at what point comes Uncle Sam's first  default? 

Regardless, the dominos remain poised for their chain reaction ravaging: a still  vastly overpriced S&P within a better-yielding debt environment, a Dollar worth  more as there are more of them, more and more debt per the CBO (which  counters the Bond argument), the Fed raising further into recession, and "ooh ooh a COVID-22 aggression"? The mutation of the 3Ds (Debasement, Debt,  Derivatives) ever so underscores the 3Gs: Gold, Gold and Gold!

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