As impressive as the global stock rally was last week, gold and silver’s remarkable performance on Friday did not generate many financial headlines. Still, their one-day individual parabolic rise merits closer attention. Could this be a new trend? Or is it just a one-day wonder?
Using the Gold ETF (GLD) as a proxy for returns, the price surged much higher on Friday, July 29. Furthermore, after the Fed raised interest rates, the iShares Silver Trust (SLV) also saw a parabolic rise. We have had two quarters of negative GDP growth and inflation hovering around 9% or even core inflation of 6%, so this is stagflation. Both precious metals are suitable to mitigate inflation risk and should continue to increase in a stagflationary environment.
To start the week, Gold opened higher and closed right around its opening price level, which is what candlestick aficinados call a doji day. Silver also opened higher and, with a lackluster session, held onto those gains. It is only a matter of time before these precious metals become much more valuable, with all the economic terms to describe current market conditions from inflation to recession to stagflation on the table.
In Europe and the US, major indices rallied last week. Asian stock performance was mixed. Though stock markets globally were mostly impressive last week, gold and silver surpassed price expectations. Both silver and gold are priced at extremely attractive levels against equity valuations.
Geopolitical risks are ongoing with the Ukraine War, so gold and silver are seen as safe haven assets and defensive plays against geopolitical unstability. Since the US dollar was weaponized against the Russian ruble, it is reasonable to assume that countries may want to diversify currency risk. For example, China’s reduction of its dollar assets is most likely a hedge against any U.S. policy geopolitical uncertainties. Recognizing US dollar strength sits near 20-year highs, eventually the dollar will decline, giving precious metals a boost.
As a hedge against stagflation and uncertainty, it seems that a long-term silver and gold rally has begun.
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ETF Summary
S&P 500 (SPY): 403 now closest support with 417 resistanceRussell 2000 (IWM): 182.50-183.50 support-maybe move to 190 nextDow (DIA): 322-323 support now, 331 next resistanceNasdaq (QQQ): A weekly close over 308.55 should keep the party going, with resistance 317KRE (Regional Banks): 60 key support, 65 resistanceSMH (Semiconductors): 230 now pivotal support, 244 resistanceIYT (Transportation): The demand side transport sector cleared the base and now must hold 229.50IBB (Biotechnology): 125 key to close aboveXRT (Retail): 62 now support to hold with 66.25 big resistance
Mish Schneider
MarketGauge.com
Director of Trading Research and Education