The next strong gust in the recessionary air could tip silver over the precipice. Although the Middle East war has boosted silver, history demonstrates that the white metal cannot escape the grim fundamentals of higher real yields, a stronger USD Index, and panic selling that takes place during recessions. Furthermore, the general public’s conviction that …
The next strong gust in the recessionary air could tip silver over the precipice. Although the Middle East war has boosted silver, history demonstrates that the white metal cannot escape the grim fundamentals of higher real yields, a stronger USD Index, and panic selling that takes place during recessions. Furthermore, the general public’s conviction that higher long-term rates don’t matter should come to an end since economic hardship is lying in plain sight. For instance, on October 17, the National Association of Homebuilders (NAHB) published the results of its Housing Market Index (HMI). From the report: “Builder confidence levels have fallen to the lowest level since January 2023 as a result of stubbornly high mortgage rates, which have climbed to a 23-year high and have remained above 7% for the past two months.”
To clarify, the blue line above tracks the inverted US 30-year mortgage rate (down means up), while the black line above tracks the HMI. The latter predicts greater downside for the former if you look at the right side of the chart. The mortgage rate is currently even higher because the U.S. 30-year Treasury yield closed at a new cycle high on October 19. As a result, the difficulties facing the American housing market should spread to other sectors of the economy, and gold prices may decline once people begin to understand the implications. On October 19, the number of new U.S. unemployment claims fell below 200,000, yet the labor market is still worse than it seems. In 2023, LinkedIn eliminated roughly 1,400 people, and on October 17, another round of layoffs was reported. In a similar vein, Indeed noted on October 2 that the holiday hiring rush is unlike what happened in 2021 and 2022 because “there are fewer [seasonal] jobs available this year than in years past, and less urgency to fill those that are available.” The report also said: “The number of seasonal/holiday job postings on Indeed has dipped below pre-pandemic levels for the first time in the post-pandemic era. Seasonal job postings were down 3% from this time last year and 6% from this time last year as of late September.
Finally, on October 16, The Bank of Canada (BOC) reported that Canadian business sentiment had fallen for seven consecutive quarters and was headed for its lowest levels since 2020. A slowdown is bad news for America because Canada exports the majority of its goods to this country. In general, the general public’s 2023 belief that long-term rates can increase indefinitely without causing havoc is similar to their 2021 belief that inflation is temporary. In practice, there is a lot of suffering, and in our opinion, the fundamental context right now is not at all like that of 2021 or 2022. The S&P 500 should therefore face significant pressure in the months to come, and the PMs are unlikely to escape the volatility.
Risk Disclaimer:
Please note that this article does not offer any instructions or suggestions regarding investment decisions. Therefore, it is essential that you carefully evaluate your financial situation and conduct thorough analysis, or seek advice from a qualified professional, before making any investment decisions.
