AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.
8/15/2022:Gold, silver still undervalued
Source:
Greetings!
Inflation is easing from 40-year highs, but challenging times are still ahead. The US economy remains weak following two straight quarters of negative growth. The US dollar has fallen from 20-year highs but remains elevated. Gold and silver have rebounded from their cyclical lows, but still have more room to rise.
In this latest video Gold Commentary, I analyze these current market fundamentals to illuminate the outlook for precious metals in coming months. We'll go through the latest charts, and I'll explain why gold remains a good value at today's prices, and why and silver is even more undervalued.
We'll also talk about a couple of pre-1933 US gold coins that I really like in the current market, especially the US $20 Saint-Gaudens MS64 and $20 Liberty MS64. These are lovely, scarce, classic coins that offer superb value right now.
And finally, I'll share a couple of outstanding pieces from Featured Rare Coins and two of the fascinating Ancient Coins that we've recently added to our inventory.
Please join me by clicking the link below to view the video. You can also find it by going to our YouTube channel.
Sincerely,
Dana Samuelson President
P.S. – We've included a transcript for your convenience.
Hi, I'm Dana Samuelson, President of American Gold Exchange. This is a video gold market update for August 12th, 2022. Let me share my screen and get my presentation going.
This is our company, American Gold Exchange. We're a physical national mail order company out of Austin, Texas. This is our contact information. If you'd like to reach us, this is what our website looks like. We have live, transparent, very competitive pricing on modern bullion and vintage pre-1933 US gold and silver coins and European gold coins pre-World War II.
If we can help you, we'd love to have that opportunity. We're consultative in nature, a user friendly. So if you'd like to participate in this market, we'd love to have the opportunity to try and help you.
[00:01:10] In this issue
Here's our Gold Market Commentary for August 12th, 2022. Inflation is easing from 40-year highs, but challenging times are still ahead. The US economy remains weak. The US dollar has weakened from 20-year highs. Relative to other currencies but remains elevated. Precious metals have rebounded from cyclical lows, but prices are still low. We'll go through the latest gold, silver, platinum, and palladium charts, talk a little bit about silver being undervalued still, relative to gold.
We're seeing US Gold and Silver Eagle premiums increase, as we told you they would in our last gold market update of July 5th. But there are other products that are very competitively priced and still available in live market conditions. We've got a couple specials, on US $20 Saint-Gaudens MS64 and $20 Liberty MS64, that we really like in the current market.
And we've also added Ancient Coins to our inventory. And we'll talk about a couple of the Featured Rare Coins that we have available right now, to show you how we analyze those kind of coins in the current marketplace.
So what's happened in the last five weeks since our July 5th gold market update, "Strong Dollar puts Gold on Sale."
[00:02:21] US economy remains weak
Well, we've got another quarterly GDP report from the US government, and we were negative 0.9% for Q2 of 2022. So we're technically in a recession, although it depends on what your definition of a recession is. And we've seen the inflation rate come down a little bit from 9.1% in June to 8.5% in July, but the Fed leaders remain pretty steadfast in their hawkish tone, talking about Fed funds rate hikes going forward.
Now this is Charles Evans, the Neil Kasari, they don't look very happy, and they shouldn't be because the Fed has committed a policy error: they're way behind the curve on inflation. We'll talk about that for a minute. They are now hiking into a US economy that's clearly weakening, and this is a recipe to create further weakness in the US economy.
But first, I saw a speech that Fed Governor Michelle Bowman gave on August 6th and there's some parts of this that are very pertinent, and I think that you all should be aware of it.
I've underlined the most pertinent parts where she says businesses are also suffering from elevated inflation, through rising and volatile prices for inputs and the need to price their own goods and services to cover costs without losing customers. So we're seeing price pressure surge over the last couple of months and we're all feeling it.
"Prices for commodities have declined lately. That's true but are still at historically high levels in contrast prices for fertilizer and many crop inputs continue to rise."
We've told you in the past that the war in Ukraine is deeply inflationary because Russia is the number one exporter of fertilizer.
Going further:
"I see significant risks of high inflation into the next year for necessities, including food, housing, fuel and vehicles, rents have grown dramatically while home sales have slowed and that's happening now, there's more homes on the market and prices are starting to come down. The continued increasing price of single-family homes indicates to me that rents won't decline any time in the near future."
Well, maybe they will.
"Recently gasoline prices have moderated but are still roughly 80% higher than pre pandemic levels due to constrained domestic supply. Distortions and disruptions of world markets….
"The supply problems pushing up inflation seem likely to persist. Indications are that the conflict in Ukraine will continue, and that the effects of shipping disruptions of agriculture products and limits on energy supplies from Russia will continue to be a significant problem….
"An announced reduction in Russian natural gas applies to Western Europe has driven European prices even. Causing ripple effects on world energy markets and raising concerns about shortages this winter….
"Despite a slowdown in sales of new and existing homes, inventories of homes for sale and rental vacancies remain low, supporting ongoing increases in housing costs."
This is a whole recipe, a list of all the things that are wrong, which is why the Fed's really between a rock and a hard place, now tightening into an economy that's challenged, not only by inflation but rising cost of money. And this is the Fed's dilemma.
[00:06:14] Inflation v Fed funds rate
This is a chart of the current inflation rate, now at 8.5%, down a little bit from the June print of 9.1%. And the Fed funds rate, which is at 2.3%. The difference between the two is 6.2%, which is extreme. Going back to the 1960s, we've never seen the Fed this far behind the inflationary curve with the Fed funds rate, which is the Fed's dilemma.
We told you in our "Inflation's Disruptive Power" videos that in the past, the Fed had to get the Fed funds rate over the inflation rate to contain inflation during the last inflationary cycle from the 1966 to 1981. And it's possible that inflation will mitigate down to four or 5% before this year is out.
But the Fed funds rate may not be over 3.5% by the end of this year. Maybe not over 4% by the middle of next year. So the Fed's probably going to remain decidedly behind the curve, which is where the rub lies, and inflation is going to continue to be a problem for quite some time, despite the headlines we're going to see of inflation mitigating a bit.
Sentiment can change much more quickly than the underlying fundamentals. So be careful about following the daily headlines. Watch the fundamentals.
[00:07:45] ECRI Weekly Leading Index
This is the Economic Cycle Research Institute's Weekly Leading Index. This is a chart that goes back to 2000 and the blue line shows the direction of the economy.
The WLI, the Weekly Leading Index, is available every week, rather than monthly, allowing for closer monitoring of the US economic cycle. Before recessions the WLI turns down before other leading indexes, giving its prompt availability effectively [even longer utlility].
So this is one of the only real-time US economic direction indicators that we have, that's not looking backward by a month or more. It is the only publicly available leading index with the real-time record of predicting the last three recessions. It has a median lead time of 10 months at business cycle peaks. And three months at business cycle troughs, and has the lowest variability of lead at business cycle peaks and troughs.
So this is one of the most reliable directional indicators of US economic activity. Where we are today at about minus 13.4% is the third lowest reading since 2000. The lowest reading of course is the March 2020 reading when COVID hit and the economic closures came. The second one is when the great financial crisis came [in 2009].
So this shows that the US economy is clearly stalling, more than probably any other leading indicator right now. And the Fed is hiking into a weakening US economy. We'll talk about that a bit more. We're seeing, we just saw, a very big jobs report for July: 528,000 new jobs, which was a stunner. I mean, the markets we're predicting about 250,000 new jobs.
This report confounds me. I don't quite get it. It's one of the few reports I've really doubted over all the years we've been watching the Bureau of Labor Statistics' producer non-farm payroll report. And that's because we've seen companies turn from hiring to laying people off. Amazon is going to cut its staff by almost a hundred thousand.
Walmart has cut corporate employees and is slashing their forecast for profits because their cost inputs are going up. Google has put a hiring freeze in. You know, the most costly component of a business is the employees. So the quickest way to cut costs when things start to weaken is to let employees go.
And I'm a bit concerned that we're going to see layoffs increase substantially in the second half of this year, as the economy continues to remain weak and the Fed continues to hike. The Fed is raising interest rates and reducing liquidity into a weakening US economy. By doing so the Fed will accelerate [the deceleration of] an already decelerating economy.
[00:11:12] Fed hiking into weakness
You can see the US GDP figures for the last four quarters. You know, Q4 of 2021 at 6.9% was a bit of an outlier because of all the stimulus money that was in the economy, which has now ended as of the spring. So we've rolled over and we're into negative growth as it's measured traditionally. This is important.
The economic tailwinds of lower interest rates, lower oil, and a weaker US dollar and low inflation between 2018 and 2022 have now all become economic headwinds of rising interest rates, higher oil, a rising US dollar and high inflation. The effects of these headwinds can lag the US economy by 12 to 24 months.
We believe that the US economy and corporate profits will remain vulnerable to further declines until the effects of these headwinds subside. But we don't see these headwinds subsiding any time in the near future, which makes equities markets in particular pretty vulnerable for the rest of this year, perhaps, especially in the fourth quarter of this year.
We're already seeing a global economic slowdown. China's weak. Their banking sector is problematic. Their housing market is particularly problematic. Japan's in recession. Europe is weak and more vulnerable to higher inflation right now and higher energy costs than the US is. And we're all slowing.
So we're in a global economic slowdown and governments around the world are hiking the cost of financing into it.
We'll run through a couple charts real quick to show you how these markets have gone down and then gone back up again, creating these tailwinds first, which basically bottom in about March of 2020, which would give about a year to two years lag time, which would fall right into the better GDP we had at the end of last year.
[00:13:17] 3-yr Treasury yields chart
So there are US Treasury yields falling down into the spring and summer of 2020. And then rising since tailwinds became headwinds.
[00:13:29] 3-yr Oil chart
Here's the oil price. Oil has dropped all the way down to about $12 a barrel, an absurd low, during March 2020. But it's risen dramatically since.
Now oil has come down a little bit. It's under $95 a barrel, but not by much; it's holding it above 85, which is still about 50% to 60% over where it traded at a mean price of about $60 a barrel for the last five years.
[00:13:57] 3-yr Dollar chart
And of course here's the US Dollar Index chart showing the dollar weakening into COVID, bottoming last summer, and now we're surging dramatically higher.
So these are all headwinds. And they [did not fully] impact the US economy until about now. We've already seen two weak quarters, and now these headwinds are really going to start to be felt more fully going forward. That's the important point here.
Let's drill down a little bit on the US Treasury rates.
[00:14:31] 6-mo Treasury yield chart
This is a six-month Treasury rate chart showing the yield for the 2-year, the 10 year, the 20-year and the 30-year. You know, the two red ovals show where the 2- and the 10-year inverted last March, they inverted briefly. And there was a lot of talk of, it's a leading indicator for recession and it's a very reliable one.
Not always, but most of the time. When we see that yield inversion, that signals a recession. Over on the righthand side of the chart today, it's incredible. The 2-year is above the 10-year, it's above the 30-year, and it's almost on par with the 20-year. So, if you lend the US government money for 20 or 30 years, you're, you're going to get less, almost, than you get lending the US government money for two years!
Now, what this also signals is the markets think that the Fed will not be able to [control] the bond market, thinks the Fed will not be able to hold rates high for long, that they'll have to give into lower economic activity and restimulate, which could really fuel inflation.
If they do that, the Fed knows this, which is why they are jawboning so much about being hawkish on trying to contain inflation. But as we talked about in our "Inflation's Disruptive Powers" videos, the Fed may not have the political will or the financial will to not stimulate the economy if it gets weak enough.
And now we are going into a global economic slowdown. We're all going to be affected. So they're going to be tempted at some point in time in the future to ease. And if that happens, it has a pretty explosive inflationary implications. One more time. Let's take a look at this ECRI Weekly Leading Index. It's pretty low right now. This is not a good sign for the economy going forward.
Okay. Let's get into the precious metals. As we talked about in our July 5th update, "Strong Dollar puts Gold on Sale." Well, that was almost perfectly timed.
[00:16:53] 2-yr Dollar chart
The dollar has weakened a bit since the July 5th update that we put out, and the early July peak on the US dollar index. So the dollars come off a bit that's because the US economy is clearly weakening and because other countries have started to raise rates.
We told you the ECB raised their rates from minus 0.5% to zero during their last meeting and that Great Britain's raising rates. So rates are going up and that's helping to bring the dollar back down. Remember currencies are relative strength to each other. And as my colleague and friend Brian London likes to say, the dollar is just the cleanest shirt in a dirty laundry bag compared to the other currencies.
So this is relative strength. We see the dollar probably channeling to trending a little bit lower over the next month or two, which has helped gold to buoy back up from July lows.
[00:17:52] 2-yr Gold chart
Let's look at the gold chart. Here's a two year gold chart going back to August of 2020.
For most of the last two years, gold has traded between about $1,750 and $1,925, with the pivot point at about $1,830. Based on that dollar strength earlier this year and into July, gold hit a cyclical low of $1,700. But since the dollar has weakened gold, has buoyed back up. In the short term right now, gold is hitting upside resistance at about $1,820 to $1,825.
If it can't get over $1,820-25 in the short term, it'll probably channel between about $1,760, $1,770, and $1,825, and stabilize here. If it gets over resistance at $1,825, it'll move perhaps into the $1,850, $1,860, $1,870 range.
Gold still looks cheap to US today at these numbers, we feel it's a pretty, relatively good value today. It's still cheap. It was on sale last month. And thank you for those of you who followed through when we put out our last video. Congratulations! You picked off the market at a low that's why we try and do these videos.
So gold looks like the decline that it's been through—since the Fed really got aggressive in raising rates beginning last spring, March, April—that liability is now settling into a more stable market.
I think going forward, I'm feeling more comfortable about gold for the first time in the last three or four months. And I've been watching these markets for 42 years.
[00:19:41] 2-yr Silver chart
Let's take a look at silver. Silver, like gold, has rebounded. But it is well below most of the trading range it's enjoyed for the last two years, between $23 and $27.75 an ounce.
Today, silver is about $20.85 an ounce, and it's come up about $2.50 since the July and lows of $18.25, $18.40. So silver looks like it's undervalued today relative to gold to us by quite a bit. We like silver at these numbers bit better than we like gold. So if you want to add more to your position, we strongly recommend going a little bit heavier than silver than gold.
We like both gold and silver more than we like platinum and palladium. We'll talk about that in just a second. So with golden about $1,805 to $1810 and silver in about $20.75, $20.85, you know, we continue to like silver a bit better.
[00:20:54] Sovereign mint bullion
While US Gold and Silver Eagle premiums are higher than normal right now—and we've seen increases in both over the last month, as we told you we would— we still have other sovereign minted products that are available, particularly in silver.
Then we have Canadian Silver Maple Leafs, which are trading a little bit higher but substantially lower than US Silver Eagles. We have slightly better pricing today on 100-oz silver bars. So if you want to buy silver bullion in bulk, 100-oz bar form, that's your most cost effective way to buy silver in bulk.
[00:21:34] Gold-to-Silver ratio chart
Looking at the Gold-to-Silver ratio today with gold at $1,805 and silver at $20.85, the ratio is about 86.5 to 1. You know, anything above 82 to 1 means silver is abnormally low relative to gold. Remains the case today. Now the ratio is narrowed from about 94 to one, which is where it peaked when we had our July 5th lows. So this substantiates our, our belief that silver is undervalued relative to gold, even though they both made some rebounds.
[00:22:14] 2-yr Platinum chart
This is a 2-year platinum chart. Like gold and silver, platinum has rebounded as well. It's back into the lower half of its two-year trading range, from about $890 to $1,150, with the pivot point at about $1,030. It did get down to a little under $820, at $817 at the bottom, and it's rebounded substantially to about $969, $970 today.
Remember, platinum is used primarily in diesel catalytic converter production. Most of its supply comes out of Russia. So if we see a weakening global economy, we'll see less demand for platinum, but the fact that it comes out of Russia, about 50% of the annual supply means that the supplies will be challenged, which is going to create a bit of a bumpy confounding platinum market going forward.
We think platinum is cheap, especially relative to gold, given its, you know, 40-year history of having, normally, a premium to gold because of its scarcity relative to gold. But it's more of an economic metal or a commodity metal than a currency metal.
So we still like silver first and gold second in the current market. Platinum is an interesting, longer-term speculation if you want to make a bet. But we could see continued liability in the platinum market if the economies in the world continue to slow down, which we think they will.
[00:23:47] 2-yr Palladium chart
Here's a 2-year palladium chart. Palladium never did really get below its major price range for the last two years. Palladium is used primarily in gasoline automobile catalytic converters, and in hydrogen fuel cells. So there's a lot of demand for palladium, and it's about twice as scarce as platinum. And like platinum, it's sourced about 50% of its supply out of Russia.
So we're going to see a confounding [palladium] market where there's going to be probably a little bit less demand for it in an economic slowdown, but supplies will be challenged because a lot of it comes out of Russia.
So to reiterate, we really like silver first gold, second platinum third. Platinum is an interesting speculation, but as you can see, you've got to have some strong convictions if you're going to get into the palladium market because the price changes it's undergone over the last two years have been very volatile, and the price swings have been about $1,300 to $1,400, or almost 50% of its price range.
So it's really, you got to pick your shots pretty well in palladium. We like it under, you know, the $1,900 level now, if you can get it there. But again, we're not quite sure how the ongoing global economic slowdown will affect the palladium market.
Let's talk briefly about a couple of our specials in the vintage US gold coin market.
[00:25:18] $20 Saints MS64 special
We have a special on $20 Saint-Gaudens in MS64 today. These coins are pretty scarce. There are about 675,000 known examples. Gold's come up about a hundred dollars in price since July. And these coins are trading at about the same price today that they were a month ago. So they're underreacting to the rise in the gold price. And that's because demand has been low.
They're limited in supply, but demand has been low, which was why we like them today. They're not priced that much, that aggressively over the underlying gold price or the price you're going to pay for a modern bullion coin, but they have about 30 to 40% more upside potential relative to gold because of their scarcity in the short term when demand surges.
So right now we've seen a lull in demand, which has created a better buying opportunity for these coins, which is why we like them as a lower priced vintage US gold coin that has popularity and scarcity today.
They're trading at about 29% over their intrinsic gold content, which is their 10-year premium average. Previous market high is about $2,500, which was set just last year. So they've got about $400 or $300 upside their previous market high, but everything's a little bit expensive today because the basal gold price is high.
If you want private gold with some muscle, this is a good coin to have.
[00:26:52] $20 Liberty MS64 special
We do like as a speculation the $20 Liberty in MS64 condition more. And the reason is, it's much scarcer, with about 144,000 known examples today. It's much scarcer than the $20 Saint-Gaudens in the same condition. And this coin has a great previous market high of $3,885 in December of 2009. In August of 2020, they got a little over $3,000, to $3,040. They're about $500 under that today. Their premium over gold today is 49% and that's a reflection of their scarcity. Their 10-year average is about 59% over gold. So they're trading at a bit lower premium over their intrinsic gold content than normal.
The reason we like both of these coins, One is a better bulk buy; one's a bit more speculative for a longer-term hold. Because in the market, there's not a lot of coins in the market today on a national level. There may be 400 or 500 of the $20 Saints all across the whole entire US market. The $20 Liberty in MS64, there may be, you know, 200. These coins are really pretty scarce nationally right now.
It's just that demand has been low over the last couple months, which is why they're not higher than they should be. So we like these coins right now while there's a lull in the marketplace.
Now we also have a couple of rare coins I'd like to talk about. This is in our Featured Rarity section on our website.
[00:28:33] 1898-P $10 Liberty MS65
This is an 1898-P, $10 Liberty in MS65 condition. And this coin is gorgeous. It's one of just 34 graded for the date and mint mark in MS65 with only 13 grading higher. So it's one of the top 50 coins known today. It's offered today at $5,470, which is about $2,100 over the common date, which is the 1901-P and the 1901-S combined.
There are about 5,000 1901-P and -S $10 Liberties in gem MS65 condition. And those are scarce coins. This one just happens to be really scarce. In fact, it's about 150 times scarcer than the 1901-P and -S total population, but it's only trading at a 60% premium to those. So if you want to have a classic, scarce-to-rare coin to put away for the longer term, this one is a good one.
It's a really good one. Actually.
[00:29:36] 1907-D $20 Liberty MS65
In the $20 Liberty field, we have a 1907 Denver Mint $20 Liberty currently available in gem MS65 condition. The $20 liberties were made from 1850 to 1907. There were only two dates that were made at the Denver mint because the Denver mint did not open until 1906. So, there's only two choices for Denver minted, $20 Liberties, 1906 and 1907.
This one has the added desirability of being the last year of issue for the $20 Liberty. So if you're a Denver Mint collector, or if you're a last year of issue collector, which some collectors are, this is a very popular coin. It's one of about 360 that are known to exist today, with about 100 that grade [higher in] MS66 or MS67 today. Offered at $7,250, it's about $2,500 over the common 1904 date. But the common 1904 date has a known population of 13,500 coins, making the 1907-D 37 times scarcer than the 1904. Yet its premium over the 1904 is only about 53% today.
This is what we look at. This is where we try and find relative value, great scarcity for not a significant premium. That's one of the fun things that I like to do as a coin nerd is find these kinds of coins. And these are excellent long term hold coins. There's not, we're not going to find very many of them ever in the market. And they're always popular. The larger $10 and $20 designs are more popular than some of the smaller gold coins.
Wrapping up, we've added Ancient Coins to our web inventory.
[00:31:30] Athenian Owls
This is an Athenian owl from 440 to 404 BC in mint quality condition. This coin is 2,600 years old in mint quality that you can get for about $1,750 today. And it's got that classic owl on the back. This is one of the most fun coins that you can own from a history standpoint.
It hardly gets any better than this. I love these owls. We've added some ancient coins to our inventory. They've been proven to be pretty popular in the market over the last few years. They're pretty scarce. They're pretty hard to find right now. So we like the owl. It's one of the coolest ancient coins and oldest at a reasonable price that you can find in the marketplace except for the classic Widow's Mite.
[00:32:25] Widow's Mite
This is a coin from Jesus' time. They're tiny. They're really pretty small. This picture's enlarged. And they're used, they're in very fine condition. We have, I don't know about 20 of them in stock right now, but they're only $79. So if you want to have something really cool to own at a low price point, you can buy a Widow's Mite that's 2,300 years old or thereabouts for $79.
That's amazing. They're fun to own. And the historical nature of them, the teaching aspects, these coins have is pretty amazing. So that's our update. If you'd like to reach us, this is how you do so, we appreciate your time and your effort to watch these videos. This is our YouTube channel. If you like us, and like what we're doing, please subscribe, and please hit the like button.
Thank you very much for your time. We appreciate it. We'll be back in touch when we have something material to say to you. Appreciate it. Enjoy the rest of your summer.
AGE's Gold Commentary
AGE Gold Commentary is our regular report analyzing trends in precious metals and rare coins. We monitor domestic and international markets and extrapolate from our 30 years in metals to place current events into a hard asset perspective. View archives.
8/15/2022: Gold, silver still undervalued
Source:
Greetings!
Inflation is easing from 40-year highs, but challenging times are still ahead. The US economy remains weak following two straight quarters of negative growth. The US dollar has fallen from 20-year highs but remains elevated. Gold and silver have rebounded from their cyclical lows, but still have more room to rise.
In this latest video Gold Commentary, I analyze these current market fundamentals to illuminate the outlook for precious metals in coming months. We'll go through the latest charts, and I'll explain why gold remains a good value at today's prices, and why and silver is even more undervalued.
We'll also talk about a couple of pre-1933 US gold coins that I really like in the current market, especially the US $20 Saint-Gaudens MS64 and $20 Liberty MS64. These are lovely, scarce, classic coins that offer superb value right now.
And finally, I'll share a couple of outstanding pieces from Featured Rare Coins and two of the fascinating Ancient Coins that we've recently added to our inventory.
Please join me by clicking the link below to view the video. You can also find it by going to our YouTube channel.
Sincerely,
Dana Samuelson
President
P.S. – We've included a transcript for your convenience.
Hi, I'm Dana Samuelson, President of American Gold Exchange. This is a video gold market update for August 12th, 2022. Let me share my screen and get my presentation going.
This is our company, American Gold Exchange. We're a physical national mail order company out of Austin, Texas. This is our contact information. If you'd like to reach us, this is what our website looks like. We have live, transparent, very competitive pricing on modern bullion and vintage pre-1933 US gold and silver coins and European gold coins pre-World War II.
If we can help you, we'd love to have that opportunity. We're consultative in nature, a user friendly. So if you'd like to participate in this market, we'd love to have the opportunity to try and help you.
[00:01:10] In this issue
Here's our Gold Market Commentary for August 12th, 2022. Inflation is easing from 40-year highs, but challenging times are still ahead. The US economy remains weak. The US dollar has weakened from 20-year highs. Relative to other currencies but remains elevated. Precious metals have rebounded from cyclical lows, but prices are still low. We'll go through the latest gold, silver, platinum, and palladium charts, talk a little bit about silver being undervalued still, relative to gold.
We're seeing US Gold and Silver Eagle premiums increase, as we told you they would in our last gold market update of July 5th. But there are other products that are very competitively priced and still available in live market conditions. We've got a couple specials, on US $20 Saint-Gaudens MS64 and $20 Liberty MS64, that we really like in the current market.
And we've also added Ancient Coins to our inventory. And we'll talk about a couple of the Featured Rare Coins that we have available right now, to show you how we analyze those kind of coins in the current marketplace.
So what's happened in the last five weeks since our July 5th gold market update, "Strong Dollar puts Gold on Sale."
[00:02:21] US economy remains weak
Well, we've got another quarterly GDP report from the US government, and we were negative 0.9% for Q2 of 2022. So we're technically in a recession, although it depends on what your definition of a recession is. And we've seen the inflation rate come down a little bit from 9.1% in June to 8.5% in July, but the Fed leaders remain pretty steadfast in their hawkish tone, talking about Fed funds rate hikes going forward.
Now this is Charles Evans, the Neil Kasari, they don't look very happy, and they shouldn't be because the Fed has committed a policy error: they're way behind the curve on inflation. We'll talk about that for a minute. They are now hiking into a US economy that's clearly weakening, and this is a recipe to create further weakness in the US economy.
But first, I saw a speech that Fed Governor Michelle Bowman gave on August 6th and there's some parts of this that are very pertinent, and I think that you all should be aware of it.
I've underlined the most pertinent parts where she says businesses are also suffering from elevated inflation, through rising and volatile prices for inputs and the need to price their own goods and services to cover costs without losing customers. So we're seeing price pressure surge over the last couple of months and we're all feeling it.
"Prices for commodities have declined lately. That's true but are still at historically high levels in contrast prices for fertilizer and many crop inputs continue to rise."
We've told you in the past that the war in Ukraine is deeply inflationary because Russia is the number one exporter of fertilizer.
Going further:
"I see significant risks of high inflation into the next year for necessities, including food, housing, fuel and vehicles, rents have grown dramatically while home sales have slowed and that's happening now, there's more homes on the market and prices are starting to come down. The continued increasing price of single-family homes indicates to me that rents won't decline any time in the near future."
Well, maybe they will.
"Recently gasoline prices have moderated but are still roughly 80% higher than pre pandemic levels due to constrained domestic supply. Distortions and disruptions of world markets….
"The supply problems pushing up inflation seem likely to persist. Indications are that the conflict in Ukraine will continue, and that the effects of shipping disruptions of agriculture products and limits on energy supplies from Russia will continue to be a significant problem….
"An announced reduction in Russian natural gas applies to Western Europe has driven European prices even. Causing ripple effects on world energy markets and raising concerns about shortages this winter….
"Despite a slowdown in sales of new and existing homes, inventories of homes for sale and rental vacancies remain low, supporting ongoing increases in housing costs."
This is a whole recipe, a list of all the things that are wrong, which is why the Fed's really between a rock and a hard place, now tightening into an economy that's challenged, not only by inflation but rising cost of money. And this is the Fed's dilemma.
[00:06:14] Inflation v Fed funds rate
This is a chart of the current inflation rate, now at 8.5%, down a little bit from the June print of 9.1%. And the Fed funds rate, which is at 2.3%. The difference between the two is 6.2%, which is extreme. Going back to the 1960s, we've never seen the Fed this far behind the inflationary curve with the Fed funds rate, which is the Fed's dilemma.
We told you in our "Inflation's Disruptive Power" videos that in the past, the Fed had to get the Fed funds rate over the inflation rate to contain inflation during the last inflationary cycle from the 1966 to 1981. And it's possible that inflation will mitigate down to four or 5% before this year is out.
But the Fed funds rate may not be over 3.5% by the end of this year. Maybe not over 4% by the middle of next year. So the Fed's probably going to remain decidedly behind the curve, which is where the rub lies, and inflation is going to continue to be a problem for quite some time, despite the headlines we're going to see of inflation mitigating a bit.
Sentiment can change much more quickly than the underlying fundamentals. So be careful about following the daily headlines. Watch the fundamentals.
[00:07:45] ECRI Weekly Leading Index
This is the Economic Cycle Research Institute's Weekly Leading Index. This is a chart that goes back to 2000 and the blue line shows the direction of the economy.
The WLI, the Weekly Leading Index, is available every week, rather than monthly, allowing for closer monitoring of the US economic cycle. Before recessions the WLI turns down before other leading indexes, giving its prompt availability effectively [even longer utlility].
So this is one of the only real-time US economic direction indicators that we have, that's not looking backward by a month or more. It is the only publicly available leading index with the real-time record of predicting the last three recessions. It has a median lead time of 10 months at business cycle peaks. And three months at business cycle troughs, and has the lowest variability of lead at business cycle peaks and troughs.
So this is one of the most reliable directional indicators of US economic activity. Where we are today at about minus 13.4% is the third lowest reading since 2000. The lowest reading of course is the March 2020 reading when COVID hit and the economic closures came. The second one is when the great financial crisis came [in 2009].
So this shows that the US economy is clearly stalling, more than probably any other leading indicator right now. And the Fed is hiking into a weakening US economy. We'll talk about that a bit more. We're seeing, we just saw, a very big jobs report for July: 528,000 new jobs, which was a stunner. I mean, the markets we're predicting about 250,000 new jobs.
This report confounds me. I don't quite get it. It's one of the few reports I've really doubted over all the years we've been watching the Bureau of Labor Statistics' producer non-farm payroll report. And that's because we've seen companies turn from hiring to laying people off. Amazon is going to cut its staff by almost a hundred thousand.
Walmart has cut corporate employees and is slashing their forecast for profits because their cost inputs are going up. Google has put a hiring freeze in. You know, the most costly component of a business is the employees. So the quickest way to cut costs when things start to weaken is to let employees go.
And I'm a bit concerned that we're going to see layoffs increase substantially in the second half of this year, as the economy continues to remain weak and the Fed continues to hike. The Fed is raising interest rates and reducing liquidity into a weakening US economy. By doing so the Fed will accelerate [the deceleration of] an already decelerating economy.
[00:11:12] Fed hiking into weakness
You can see the US GDP figures for the last four quarters. You know, Q4 of 2021 at 6.9% was a bit of an outlier because of all the stimulus money that was in the economy, which has now ended as of the spring. So we've rolled over and we're into negative growth as it's measured traditionally. This is important.
The economic tailwinds of lower interest rates, lower oil, and a weaker US dollar and low inflation between 2018 and 2022 have now all become economic headwinds of rising interest rates, higher oil, a rising US dollar and high inflation. The effects of these headwinds can lag the US economy by 12 to 24 months.
We believe that the US economy and corporate profits will remain vulnerable to further declines until the effects of these headwinds subside. But we don't see these headwinds subsiding any time in the near future, which makes equities markets in particular pretty vulnerable for the rest of this year, perhaps, especially in the fourth quarter of this year.
We're already seeing a global economic slowdown. China's weak. Their banking sector is problematic. Their housing market is particularly problematic. Japan's in recession. Europe is weak and more vulnerable to higher inflation right now and higher energy costs than the US is. And we're all slowing.
So we're in a global economic slowdown and governments around the world are hiking the cost of financing into it.
We'll run through a couple charts real quick to show you how these markets have gone down and then gone back up again, creating these tailwinds first, which basically bottom in about March of 2020, which would give about a year to two years lag time, which would fall right into the better GDP we had at the end of last year.
[00:13:17] 3-yr Treasury yields chart
So there are US Treasury yields falling down into the spring and summer of 2020. And then rising since tailwinds became headwinds.
[00:13:29] 3-yr Oil chart
Here's the oil price. Oil has dropped all the way down to about $12 a barrel, an absurd low, during March 2020. But it's risen dramatically since.
Now oil has come down a little bit. It's under $95 a barrel, but not by much; it's holding it above 85, which is still about 50% to 60% over where it traded at a mean price of about $60 a barrel for the last five years.
[00:13:57] 3-yr Dollar chart
And of course here's the US Dollar Index chart showing the dollar weakening into COVID, bottoming last summer, and now we're surging dramatically higher.
So these are all headwinds. And they [did not fully] impact the US economy until about now. We've already seen two weak quarters, and now these headwinds are really going to start to be felt more fully going forward. That's the important point here.
Let's drill down a little bit on the US Treasury rates.
[00:14:31] 6-mo Treasury yield chart
This is a six-month Treasury rate chart showing the yield for the 2-year, the 10 year, the 20-year and the 30-year. You know, the two red ovals show where the 2- and the 10-year inverted last March, they inverted briefly. And there was a lot of talk of, it's a leading indicator for recession and it's a very reliable one.
Not always, but most of the time. When we see that yield inversion, that signals a recession. Over on the righthand side of the chart today, it's incredible. The 2-year is above the 10-year, it's above the 30-year, and it's almost on par with the 20-year. So, if you lend the US government money for 20 or 30 years, you're, you're going to get less, almost, than you get lending the US government money for two years!
Now, what this also signals is the markets think that the Fed will not be able to [control] the bond market, thinks the Fed will not be able to hold rates high for long, that they'll have to give into lower economic activity and restimulate, which could really fuel inflation.
If they do that, the Fed knows this, which is why they are jawboning so much about being hawkish on trying to contain inflation. But as we talked about in our "Inflation's Disruptive Powers" videos, the Fed may not have the political will or the financial will to not stimulate the economy if it gets weak enough.
And now we are going into a global economic slowdown. We're all going to be affected. So they're going to be tempted at some point in time in the future to ease. And if that happens, it has a pretty explosive inflationary implications. One more time. Let's take a look at this ECRI Weekly Leading Index. It's pretty low right now. This is not a good sign for the economy going forward.
Okay. Let's get into the precious metals. As we talked about in our July 5th update, "Strong Dollar puts Gold on Sale." Well, that was almost perfectly timed.
[00:16:53] 2-yr Dollar chart
The dollar has weakened a bit since the July 5th update that we put out, and the early July peak on the US dollar index. So the dollars come off a bit that's because the US economy is clearly weakening and because other countries have started to raise rates.
We told you the ECB raised their rates from minus 0.5% to zero during their last meeting and that Great Britain's raising rates. So rates are going up and that's helping to bring the dollar back down. Remember currencies are relative strength to each other. And as my colleague and friend Brian London likes to say, the dollar is just the cleanest shirt in a dirty laundry bag compared to the other currencies.
So this is relative strength. We see the dollar probably channeling to trending a little bit lower over the next month or two, which has helped gold to buoy back up from July lows.
[00:17:52] 2-yr Gold chart
Let's look at the gold chart. Here's a two year gold chart going back to August of 2020.
For most of the last two years, gold has traded between about $1,750 and $1,925, with the pivot point at about $1,830. Based on that dollar strength earlier this year and into July, gold hit a cyclical low of $1,700. But since the dollar has weakened gold, has buoyed back up. In the short term right now, gold is hitting upside resistance at about $1,820 to $1,825.
If it can't get over $1,820-25 in the short term, it'll probably channel between about $1,760, $1,770, and $1,825, and stabilize here. If it gets over resistance at $1,825, it'll move perhaps into the $1,850, $1,860, $1,870 range.
Gold still looks cheap to US today at these numbers, we feel it's a pretty, relatively good value today. It's still cheap. It was on sale last month. And thank you for those of you who followed through when we put out our last video. Congratulations! You picked off the market at a low that's why we try and do these videos.
So gold looks like the decline that it's been through—since the Fed really got aggressive in raising rates beginning last spring, March, April—that liability is now settling into a more stable market.
I think going forward, I'm feeling more comfortable about gold for the first time in the last three or four months. And I've been watching these markets for 42 years.
[00:19:41] 2-yr Silver chart
Let's take a look at silver. Silver, like gold, has rebounded. But it is well below most of the trading range it's enjoyed for the last two years, between $23 and $27.75 an ounce.
Today, silver is about $20.85 an ounce, and it's come up about $2.50 since the July and lows of $18.25, $18.40. So silver looks like it's undervalued today relative to gold to us by quite a bit. We like silver at these numbers bit better than we like gold. So if you want to add more to your position, we strongly recommend going a little bit heavier than silver than gold.
We like both gold and silver more than we like platinum and palladium. We'll talk about that in just a second. So with golden about $1,805 to $1810 and silver in about $20.75, $20.85, you know, we continue to like silver a bit better.
[00:20:54] Sovereign mint bullion
While US Gold and Silver Eagle premiums are higher than normal right now—and we've seen increases in both over the last month, as we told you we would— we still have other sovereign minted products that are available, particularly in silver.
We have Austrian Philharmonics, South African Silver Krugerrands, and Great Britain Britannias available at the lowest premium for sovereign minted silver products.
Then we have Canadian Silver Maple Leafs, which are trading a little bit higher but substantially lower than US Silver Eagles. We have slightly better pricing today on 100-oz silver bars. So if you want to buy silver bullion in bulk, 100-oz bar form, that's your most cost effective way to buy silver in bulk.
[00:21:34] Gold-to-Silver ratio chart
Looking at the Gold-to-Silver ratio today with gold at $1,805 and silver at $20.85, the ratio is about 86.5 to 1. You know, anything above 82 to 1 means silver is abnormally low relative to gold. Remains the case today. Now the ratio is narrowed from about 94 to one, which is where it peaked when we had our July 5th lows. So this substantiates our, our belief that silver is undervalued relative to gold, even though they both made some rebounds.
[00:22:14] 2-yr Platinum chart
This is a 2-year platinum chart. Like gold and silver, platinum has rebounded as well. It's back into the lower half of its two-year trading range, from about $890 to $1,150, with the pivot point at about $1,030. It did get down to a little under $820, at $817 at the bottom, and it's rebounded substantially to about $969, $970 today.
Remember, platinum is used primarily in diesel catalytic converter production. Most of its supply comes out of Russia. So if we see a weakening global economy, we'll see less demand for platinum, but the fact that it comes out of Russia, about 50% of the annual supply means that the supplies will be challenged, which is going to create a bit of a bumpy confounding platinum market going forward.
We think platinum is cheap, especially relative to gold, given its, you know, 40-year history of having, normally, a premium to gold because of its scarcity relative to gold. But it's more of an economic metal or a commodity metal than a currency metal.
So we still like silver first and gold second in the current market. Platinum is an interesting, longer-term speculation if you want to make a bet. But we could see continued liability in the platinum market if the economies in the world continue to slow down, which we think they will.
[00:23:47] 2-yr Palladium chart
Here's a 2-year palladium chart. Palladium never did really get below its major price range for the last two years. Palladium is used primarily in gasoline automobile catalytic converters, and in hydrogen fuel cells. So there's a lot of demand for palladium, and it's about twice as scarce as platinum. And like platinum, it's sourced about 50% of its supply out of Russia.
So we're going to see a confounding [palladium] market where there's going to be probably a little bit less demand for it in an economic slowdown, but supplies will be challenged because a lot of it comes out of Russia.
So to reiterate, we really like silver first gold, second platinum third. Platinum is an interesting speculation, but as you can see, you've got to have some strong convictions if you're going to get into the palladium market because the price changes it's undergone over the last two years have been very volatile, and the price swings have been about $1,300 to $1,400, or almost 50% of its price range.
So it's really, you got to pick your shots pretty well in palladium. We like it under, you know, the $1,900 level now, if you can get it there. But again, we're not quite sure how the ongoing global economic slowdown will affect the palladium market.
Let's talk briefly about a couple of our specials in the vintage US gold coin market.
[00:25:18] $20 Saints MS64 special
We have a special on $20 Saint-Gaudens in MS64 today. These coins are pretty scarce. There are about 675,000 known examples. Gold's come up about a hundred dollars in price since July. And these coins are trading at about the same price today that they were a month ago. So they're underreacting to the rise in the gold price. And that's because demand has been low.
They're limited in supply, but demand has been low, which was why we like them today. They're not priced that much, that aggressively over the underlying gold price or the price you're going to pay for a modern bullion coin, but they have about 30 to 40% more upside potential relative to gold because of their scarcity in the short term when demand surges.
So right now we've seen a lull in demand, which has created a better buying opportunity for these coins, which is why we like them as a lower priced vintage US gold coin that has popularity and scarcity today.
They're trading at about 29% over their intrinsic gold content, which is their 10-year premium average. Previous market high is about $2,500, which was set just last year. So they've got about $400 or $300 upside their previous market high, but everything's a little bit expensive today because the basal gold price is high.
If you want private gold with some muscle, this is a good coin to have.
[00:26:52] $20 Liberty MS64 special
We do like as a speculation the $20 Liberty in MS64 condition more. And the reason is, it's much scarcer, with about 144,000 known examples today. It's much scarcer than the $20 Saint-Gaudens in the same condition. And this coin has a great previous market high of $3,885 in December of 2009. In August of 2020, they got a little over $3,000, to $3,040. They're about $500 under that today. Their premium over gold today is 49% and that's a reflection of their scarcity. Their 10-year average is about 59% over gold. So they're trading at a bit lower premium over their intrinsic gold content than normal.
The reason we like both of these coins, One is a better bulk buy; one's a bit more speculative for a longer-term hold. Because in the market, there's not a lot of coins in the market today on a national level. There may be 400 or 500 of the $20 Saints all across the whole entire US market. The $20 Liberty in MS64, there may be, you know, 200. These coins are really pretty scarce nationally right now.
It's just that demand has been low over the last couple months, which is why they're not higher than they should be. So we like these coins right now while there's a lull in the marketplace.
Now we also have a couple of rare coins I'd like to talk about. This is in our Featured Rarity section on our website.
[00:28:33] 1898-P $10 Liberty MS65
This is an 1898-P, $10 Liberty in MS65 condition. And this coin is gorgeous. It's one of just 34 graded for the date and mint mark in MS65 with only 13 grading higher. So it's one of the top 50 coins known today. It's offered today at $5,470, which is about $2,100 over the common date, which is the 1901-P and the 1901-S combined.
There are about 5,000 1901-P and -S $10 Liberties in gem MS65 condition. And those are scarce coins. This one just happens to be really scarce. In fact, it's about 150 times scarcer than the 1901-P and -S total population, but it's only trading at a 60% premium to those. So if you want to have a classic, scarce-to-rare coin to put away for the longer term, this one is a good one.
It's a really good one. Actually.
[00:29:36] 1907-D $20 Liberty MS65
In the $20 Liberty field, we have a 1907 Denver Mint $20 Liberty currently available in gem MS65 condition. The $20 liberties were made from 1850 to 1907. There were only two dates that were made at the Denver mint because the Denver mint did not open until 1906. So, there's only two choices for Denver minted, $20 Liberties, 1906 and 1907.
This one has the added desirability of being the last year of issue for the $20 Liberty. So if you're a Denver Mint collector, or if you're a last year of issue collector, which some collectors are, this is a very popular coin. It's one of about 360 that are known to exist today, with about 100 that grade [higher in] MS66 or MS67 today. Offered at $7,250, it's about $2,500 over the common 1904 date. But the common 1904 date has a known population of 13,500 coins, making the 1907-D 37 times scarcer than the 1904. Yet its premium over the 1904 is only about 53% today.
This is what we look at. This is where we try and find relative value, great scarcity for not a significant premium. That's one of the fun things that I like to do as a coin nerd is find these kinds of coins. And these are excellent long term hold coins. There's not, we're not going to find very many of them ever in the market. And they're always popular. The larger $10 and $20 designs are more popular than some of the smaller gold coins.
Wrapping up, we've added Ancient Coins to our web inventory.
[00:31:30] Athenian Owls
This is an Athenian owl from 440 to 404 BC in mint quality condition. This coin is 2,600 years old in mint quality that you can get for about $1,750 today. And it's got that classic owl on the back. This is one of the most fun coins that you can own from a history standpoint.
It hardly gets any better than this. I love these owls. We've added some ancient coins to our inventory. They've been proven to be pretty popular in the market over the last few years. They're pretty scarce. They're pretty hard to find right now. So we like the owl. It's one of the coolest ancient coins and oldest at a reasonable price that you can find in the marketplace except for the classic Widow's Mite.
[00:32:25] Widow's Mite
This is a coin from Jesus' time. They're tiny. They're really pretty small. This picture's enlarged. And they're used, they're in very fine condition. We have, I don't know about 20 of them in stock right now, but they're only $79. So if you want to have something really cool to own at a low price point, you can buy a Widow's Mite that's 2,300 years old or thereabouts for $79.
That's amazing. They're fun to own. And the historical nature of them, the teaching aspects, these coins have is pretty amazing. So that's our update. If you'd like to reach us, this is how you do so, we appreciate your time and your effort to watch these videos. This is our YouTube channel. If you like us, and like what we're doing, please subscribe, and please hit the like button.
Thank you very much for your time. We appreciate it. We'll be back in touch when we have something material to say to you. Appreciate it. Enjoy the rest of your summer.