One of the less reported casualties of Donald Trump's tariff talk has been metals prices.
Having touched $3.30 per pound in June, copper now sits at $2.75, a fall of some 15%. Zinc, too, has taken a turn for the worse, down some 20% in the same period.
Then there are the precious metals, the subject of today's Money Morning as if investors in this sector needed another kick in the face!
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Summertime, and the gold investing ain't easy
Wisdom has it that the summer months June, July and August are the best time of year to buy precious metals (and their related stocks) with a view to offloading the following winter or in early spring.
It's one of those trades that seems to work better in the rear-view mirror than it does in real time, however.
If you look back at a chart of gold you can usually find a low sometime in July, and then find a point between the following October and April, where the gold price was 10% or 20% higher, and then declare that the trade worked.
Buying the low and selling the high in real time is a rather trickier proposition. That said, it is do-able.
However, gold itself is currently in freefall. In April, gold was re-testing five-year highs at $1,360-$1,370 per ounce. There was a nice uptrend in place. Each low was higher than the last. Talk of inflation was doing the rounds again, and the solution was shiny, yellow-y metal.
Now it is some $130 lower at $1,227. Each low is lower than the last. Every attempt at a rally is anaemic. The trend is strong and the trend is down. To be buying now and attempting to play the "summer trade" is to try and catch a falling knife. Sometimes it works and the audience applauds however the risk of self-injury is high.
Tuesday was particularly brutal. Gold's enemy number one, the chairman of the Federal Reserve Bank, Jerome Powell, said that the economy was growing at a "solid pace", that the unemployment rate was expected to fall further, that the recent pickup in inflation, toward the Fed's 2% target, was "encouraging".
The Fed has already raised interest rates twice this year and Powell pencilled in two more quarter-point moves. Stocks duly rallied (a bit), the dollar rallied and gold took a $20 wallop in the face, sending it to two-year lows.
The best thing to do with silver
My 17-year-old son, who is in his first year of A-levels, is wondering what he wants to do for a living. I'm tempted to tell him to become a silver salesman.
You're selling a beautiful product that has a gazillion different uses. Anyone who handles it is instantly captivated. Human instinct tells you it's precious.
And it has some of the most compelling investment stories of all behind it from a manipulated market that is about to blow up and send silver to the moon; to a fiat money system that's about to blow up and send silver to the moon; to various technological uses that will require so much silver that they will, yes, send silver the moon.
But I'm not advocating that he become a bullion dealer. Rather, he should do what JP Morgan does. Sell silver. Short it. Because all it ever seems to do is go down. You can make a good living doing it. People do.
There are brief moments of respite every now and then. Then the selling resumes.
Silver has been suffering the double whammy of late. It's being sold because it's a precious metal and it's being sold because it's an industrial metal. The worst-performing stocks among the miners on Tuesday's day of carnage were, yup, the silver miners.
The current price is $15.42 per ounce. If it were to go anywhere near its historical averages a silver dollar (one ounce) is a day's wage for a working man, and all that it should be, I don't know, five or ten times its current price.
Instead, at the moment, it is staring down the barrel of its 2015-16 lows of around $14.
Should you feel the fear and take the plunge anyway?
So do you take on the summer trade? In the face of all this bearishness indeed, this article is probably a contrarian indicator in itself do you go for it, and buy precious metals?
There are several reasons to do so. The market is oversold, by just about any measure you care to use. Bearish sentiment and negativity is everywhere. Buying dips in the summer can prove rewarding.
Ross Norman of bullion dealerSharps Pixleyreports that his company "starting to see really good physical selling at these record 18 month gold lows, when one might ordinarily expect bargain hunting". This would suggest we are close to some kind of final capitulation."The good news for gold bulls," Norman continues, "is that the weaker hands in the ETFs have sold out, the speculative long overhang on CME has all but disappeared and we have absorbed about 700 tonnes of leveraged selling (and we are now at levels not seen since early 2016), while the demand for physical reported by the Mints around the world are at generational lows. Indian demand is patchy and Chinese demand only adequate. I might add that the term "buy gold" on Google Trends has just slipped to a decade low." In other words, there is a lot of room for buyers to come back to the market.
Many precious metal miners have actually been displaying relative strength and the ratio between miners and gold is, believe it or not, in a uptrend. That is normally a positive sign. The selling won't last forever, even if it feels like it will. Precious metals' time will come again. Deficit spending in the US is rising further. Mining stocks are cheap.
On the other hand, what is oversold can get more oversold. Negative sentiment can get more negative. The "time of year" trade is impractical. And who cares what the mining stocks are doing?
The deficit spending narrative, despite being ongoing, only seems to matter some of the time. And even if mining stocks are cheap, they can get even cheaper. And so on.
This is a sample of the swirl of contradictions that abound in a market like precious metals which is going nowhere. Back in the bull market days of 2001-11, it all seemed so much clearer. Now gold and silver are, at best, range-bound. At worst, the bear market is back on. I can see support for gold at $1,200, at $1,120 and heaven forbid it should go that low at $1,050.
My theory on gold has for some time been that out on the horizon things are slowly lining up for gold inflation, credit crises, monetary panic, and all the rest of it but the ducks are not yet in line. One day they will be, but that day has not yet come. In other words, we are not yet in a bull market.
It might be that when the bull market does come, things will move so quickly you won't have time to get positioned that is the Jim Rickards theory so it makes sense to own some now. In five years, gold bought at $1,225/oz might look a sound investment.
But in the shorter-term, you risk catching a falling knife. The path of least resistance, in the short term, is down. It will remain so until all this tariff talk resolves.
Dominic Frisby (“mercurially witty” – the Spectator) is the world’s only financial writer and comedian. He is MoneyWeek’s main commentator on gold, commodities, currencies and cryptocurrencies. He is the author of the books Bitcoin: the Future of Money? and Life After The State. He also co-wrote the documentary Four Horsemen, and presents the chat show, Stuff That Interests Me.
His show 2016 Let’s Talk About Tax was a huge hit at the Edinburgh Festival and Penguin Random House have since commissioned him to write a book on the subject – Daylight Robbery – the past, present and future of tax will be published later this year. His 2018 Edinburgh Festival show, Dominic Frisby's Financial Gameshow, won rave reviews. Dominic was educated at St Paul's School, Manchester University and the Webber-Douglas Academy Of Dramatic Art.
You can follow him on Twitter @dominicfrisby
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