We got some softer U.S. economic data this morning on consumer prices, retail sales and consumer confidence. It fanned concerns that U.S. growth is heading south. As a result, U.S. Treasuries and precious metals both rallied. Meanwhile, the U.S. dollar sold off.
Investors smell a whiff of deflation in the air. Plus, the Fed’s path toward tightening monetary policy looks way off-track, and likely to further derail the economy.
Specifically, the fourth-straight monthly decline in the Consumer Price Index is a red flag. It signals that inflation is nowhere close to achieving the Fed’s 2% target.
As a result, expectations for Yellen & Co. to hike interest rates again this year fell to 40%. That’s down from a 60% chance earlier in the week.
Precious metals benefit from a falling dollar and a continuation of interest rates staying lower for longer, as that boosts the chances the Fed will be hopelessly behind the curve when inflation does catch fire down the road.
This morning’s gold market rally punched through the June-July downtrend line. This move goes a step further in confirming the July 10 low as an intermediate-term bottom. See chart:
This week’s challenge and failure to drop below the March low of $1,201.40, followed by an upside breakout of downtrend line resistance, is bullish for the yellow metal.
As I pen this issue, gold has gained $10.20 an ounce on the day, breaking above $1,227. Silver is performing even better, up 1.5%, or $0.23 an ounce. And it breached the key $16 level this morning.
But silver also benefits from active buying in Exchange-Traded Funds. Bloomberg data is showing global holdings at an all-time high of 21,000 metric tons. That’s great news for our VelocityShares 3x Long Silver ETF (USLV).
The precious-metals rally is also helping current holdings in the VanEck Vectors Junior Gold Miners ETF (GDXJ), Direxion Daily Junior Gold Miners Index Bull 3x Shares (JNUG), Seabridge Gold (SA) and Sibanye Gold (SBGL).
Just as our E-Wave models predicted, gold miners are leading the pack higher today, and silver is likewise outperforming gold. A strong weekly close today in silver prices and the miners will prompt us to add to our positions. Stay tuned.
Bottom line: The cycle lows and upside trend change in silver and junior-mining stocks is playing out right on cue. Gold is acting stronger as well. So stay alert for fresh updates and trade alerts coming your way soon.
Mike and David