It's been an interesting week for gold. It started the new year by ripping higher to touch a 6 month high, regaining its losses of the previous 6 months. On Thursday, the U.S. employment report came out which showed that unemployment fell to 3 month lows while layoffs fell 43% in December, suggesting a tighter labor market. This seemingly put an end to the New Year rally by sending gold back down to $1833.
Yesterday though, the rally was back on with the Services Manager Purchasing Index data showed that it contracted for the first time in 30 months. While consensus was that the index was going to come in at 55%, it came in at 49.6%, suggesting the economy is losing momentum.
This sent gold rallying back to a 6 month high for the second time this week, briefly hitting $1,870. The one day chart below shows how sharp the climb was.
Silver took a bigger beating too, dropping more than $1.20 per ounce over two days. Like gold, it managed to recover and nearly breached $24, a mark silver has managed to hold since January, 2022 before closing on Friday.
More can be read about the jobs report here.
Another thing on everyone's mind is whether the FED will 'pivot' away from rate increases come next February at their next FOMC meeting. Personally, I don't think they will because inflation is still hot. Dr. Michael Burry of 'The Big Short' fame was back in the news this week by suggesting that inflation was indeed cooling but only temporarily on a longer trend of higher inflation and that the U.S. is now in a recession, by any definition. He expects the FED to cut rates later this year (December?) and then to once again go on a money printing spree which he says will spark another uptick in inflation.
So then, it looks like 2023 is the year of recession and 2024 is the year of more Q.E. and inflation. In tweet he put out on January 1, he stated 'Inflation peaked. But it is not the last peak of this cycle. We are likely to see CPI lower, possibly negative in 2H 2023, and the US in recession by any definition. Fed will cut and government will stimulate. And we will have another inflation spike. It's not hard'.
No, it's not hard at all to figure out.
An article put out by Charles Hugh Smith and published on Zero Hedge yesterday titled, 'Who would benefit from a severe global recession?' perfectly summed up who is best to survive such a recession relatively unscathed. He writes, "As painful as this liquidation and repricing of risk is for borrowers and lenders, those without debt, those with cash and those with essential skills that are in demand regardless of boom or bust will all benefit".
The motto here is, get out of debt, pile on some cash and wait it out to buy when the bottom hits. Those with essential skills, for example, machinists, accountants, electricians stand a much better chance of finding a new job should they lose their old one. In fact, they have a much better chance of retaining their jobs compared to unskilled labor when a slowdown hits.
Expect rates to creep higher during the first half of this year and then, a possible 'pivot' sometime in the second half, as so many investors are hoping for. With higher interest rates, gold should benefit along with all those 'essential workers'. Will gold hit $1,900 before month end? If it does, expect fireworks!
Consider investing in precious metals, especially silver as it is so under-valued compared to gold. I sure would love to see silver finally breach its 1980 high of $50. It is the only commodity to not breach its previous high and that in itself is remarkable considering the amount of inflation we've experienced since 1980. Also, it's a good idea to learn a skill or two.
Peace and Love to everyone.
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