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By the middle of January, the US Dollar Index was down than 10% from its September peak. The move pushed the index below its 2016 and 2020 peaks for the first time in nearly a year – a heartening development for equity market bulls, who watched Dollar strength wreak havoc on returns in 2022. The downtrend continued as we moved into the second month of the year, and the first trading day of February brought with it new lows for the index. All seemed well.
Interest rates dropped in January, providing fuel for the equity market rally and setting the stage for growth stocks to outperform their value counterparts. The correlation between stocks and bonds is nothing new – it drove market all throughout 2022. Check out how closely the two moved together last year:
Metals pushed to the front of the pack in November. Gold and Silver both had their best month since 2020, and Copper prices rose by more than 12%.
At the end of October, it looked as though Gold prices were stuck beneath the low end of their 2020-2021 range and headed back toward their COVID lows. The problem for precious metal bears, though, was that Gold’s decline hadn’t accelerated when those lows were initially broken. Even worse, Silver prices had failed to confirm the breakdown. In fact, while Gold was setting new lows, Silver was setting higher ones. Silver tends to lead while precious metals are rising and lag when metals fall, so it was unusual to see Gold falling while its counterpart was putting in what looked like a healthy base.
Silver looks even better today.
The 2019-2020 highs provided a perfect springboard to launch Silver back above those 2021 lows, and it wouldn’t be surprising to see it retest multi-year highs. For those of you keeping score, that would be 25% higher from here.
Gold is battling near-term resistance at its August highs, and it’s yet to convincingly exceed the 200-day moving average. Still, the chart is in better shape than it was a month ago, and if prices can hang above 1800 for a week or two, there’s no reason it couldn’t join Silver in a retest of the highs.
The fate of metals may rest in the hands of the US Dollar.
Dollar strength has been a headwind for equities and metals for much of the year, as it rose 20% from January through September. With markets increasingly anticipating a slowing in Federal Reserve tightening actions, though, the greenback is giving back some of its gains. On Thursday, the US Dollar Index closed below its 200-day moving average for the first time in well over a year.
Continue reading “Is it Time to Buy Precious Metals Again?”Gold prices just closed the week at a new all-time high for the first time since 2011.
From 2001 to 2011, Gold rallied an incredible 650%, posting only 1 calendar year of negative returns, and annualizing at more than 20% for the decade. But, alas, no party lasts forever. The next several years were filled with nothing but frustration and disappointment for yellow metal investors, as prices stumbled along, digesting the run-up.
But having gained 60% in less than 2 years, including 5% last week, to reach new highs, Gold is having its day in the sun once more.
The strength last week wasn’t limited to Gold. Other precious metals are joining in the fun. Palladium, the strongest of the group over the last 5 years, jumped 10%. It’s spent most of the year digesting the blowoff top of late 2019 and early 2020, when prices doubled in 7 months, but another week like last would put Palladium above resistance at $2300, and closer to setting another new high.
Confirming the strength, Silver rose a staggering 17% last week, its best 7-day stretch since 1982. Prices started the year by dropping nearly 40% in a month and breaking to 11-year lows. But they quickly reversed, and last week’s performance took Silver to its highest level since 2013.
Like Gold, Silver’s rally from 2001 to 2011 was nothing short of spectacular – it rose more than 1000%. But it has underperformed Gold in the years since. To reach a new high of its own, Silver still needs to double.
Platinum has been even weaker: it hasn’t even managed to break the downtrend line since its 2008 peak. But just as the false breakdown in Silver prices spurred a rally to multi-year highs, the false breakdown in Platinum earlier this year may be the catalyst needed to turn things around. It climbed 9% last week, bringing prices back above the 200-week moving average and only 10% from its year-to-date high.
Broad strength in precious metals comes amid the backdrop of a weakening US Dollar, with a benchmark index falling to its lowest level since mid-2018 last week. The DXY has been trapped in a channel between 90 and 100 for the better part of the last 6 years, but early this year looked poised to head higher. A rally to 103, as global investors rushed to the safety of the world’s reserve currency during the onset of the COVID-19 crisis, was quickly reversed, and the Dollar has steadily trended lower since.
As long as the DXY falls in value, hard assets priced in USD can count on at least one tailwind to push them higher.
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