Is The Banking Crisis Really Over? - Monthly Wrap Up

Voiceover: You're listening to Sprott Money's "Monthly Wrap-Up," with Craig Hemke.

Craig: Greetings, everyone, from Sprott Money News and sprottmoney.com. It is now the end of March, specifically March the 30th, 2023. And it's time for your monthly wrap-up. I'm your host, Craig Hemke. And joining me for this monthly wrap-up is my fellow Sprott Money contributor, David Brady. David, my kind of technical analyst. He's very good at what he does, but he also pays attention to the macro, the fundamentals, the big picture stuff, writes about it every week here at Sprott Money.

So make sure you're checking sprottmoney.com every week under the Insights tab to find David's latest thoughts. And for his most current thoughts, we've got him on here for this podcast. David, thank you so much for spending some time with me.

David: Oh, it's great to be with you again, Craig.

Craig: My friend, before we get started, I wanna first remind everybody about Sprott Money because Sprott Money is the sponsor of all of this content. Go to their site for storage deals, bullion deals, and all sorts of assistance with your retirement accounts. Everything else that Sprott Money can do can be found at their site, sprottmoney.com, but also 888-861-0775. Again, under that Insights tab, you'll find some of David's work. David, where else can people find you on the internet if they wanna follow you?

David: Well, yeah, you mentioned Sprott Money, but you can find me on Twitter @GlobalProTrader, and I also write for another platform, silverchartist.com.

Craig: Great platform.

David: Yes, I like to think so. Yes. We've got some good guys on there talking about silver and gold and, you know, almost everything else as well, but primarily the precious metals.

Craig: Fantastic. Well, my friend, this has been quite the month, long, right, 31 days. We're wrapping up the month and the quarter tomorrow, Friday, the 31st. But what a change of events. You know, we started the month with Chairman Powell going up on Capitol Hill for his semi-annual Humphrey-Hawkins testimony, and he's talking about higher for longer. And I think Fed funds was pricing in a pretty high likelihood of a 50-basis-point rate hike at the FOMC that concluded a couple of weeks ago.

But then mid-month, here came all this banking crisis stuff. And now we end the month with people wondering if the Fed's even gonna hike again before... Even the Fed themselves are starting to project rate cuts. What do you make of all this from the beginning of the month to the end of the month? And where do you think we stand in terms of monetary policy and the economy and everything else?

David: Well, it's been fun. I'll say that for a start. But yeah, the higher for longer finally bit in the sense that, you know, they created easy money for quite a long time, and the banks make their money by investing out long term and getting higher rates as a result, whether it's in terms of loans or buying US treasuries, and they pay little to nothing on deposits. Well, they ran into trouble when depositors suddenly realized that they weren't getting a good deal at Silicon Valley Bank, and they were concerned about the financial status of the company, and they started a run on the bank.

A lot of people actually believed that this was going to happen, but to actually see it, it was quite profound. And what was more profound to me was after Silicon Valley collapsed on March 9th, the very next day, I think it was a Saturday, it was Signature Bank, got into trouble, and then First Republic, and then it was, like, Credit Suisse. And then the spreads on debts were blowing out everywhere to Barclays, SocGen in France. And I was like, "Whoa."

So, it was a bomb about to go off, is my point, given their easy policies and then the way the balance sheets were structured at each of these banks. And eventually, you know, they reached a tipping point, and that's when the Fed and the Treasury had to step in. But the interesting thing for me is now that people believe that the fears with regard to the banking crisis have receded, in my opinion, they're by no means over. And I'll point to two, you know, very clear indicators of this.

Yellen's response. It was initially that they would step in to ensure all the depositors of basically all the banks. Then it was a flip flop, the first flip flop where she came out shortly thereafter to say, "No, we're going to focus on the deposits of the banks that are systemically important, i.e., too big to fail." Well, that meant the small and medium-sized banks were left out to dry. And then changed it again the following day with a more nothing statement where we stand ready to support all the banks' deposits as we deem fit.

Well, I don't know about you, but when somebody says to me, "Hey, David, I've got your back," and then tells me the next day, "No, I don't have your back." And then the third day says, "We'll see," I don't feel very comfortable that you are gonna be there when I need you. You know, to state it bluntly as an Irishman, if you are truly willing to back all the banks, wouldn't you come out and state it explicitly? I mean, write it in concrete, "Don't worry, we've got all the depositors covered. The Fed and the Treasury stand ready to support all of the depositors." But they don't say that. The reason why is a whole other conversation. But, what this means is, this banking crisis is by no means over, in my opinion.

And then I'll switch to the Bank of England on Tuesday where the governor there said that the banking system is strong. This is in the UK. But he also said, "We need to remain alert and extremely vigilant with regard to the banking sector." Wait, hold on a second. That's a contradiction. One second you said the banking system is strong, but we need to keep all eyes on this right now, and everybody needs to be on the ball because something could drop.

Craig: You weren't supposed to notice that.

David: Yeah. Well, I dunno, maybe it's just me, but I'm sure a few people like yourself as well, Craig, noticed it. But again, that tells me the banking system is not strong, which... You know, cut to the chase, these central bankers tell you what you want to hear, and there's a reason for it. They want to maintain confidence. They don't wanna start a panic. I get it. And Bernanke admitted this a few years ago. What I'm trying to take away from all this is, the fears have receded with regard to the banking crisis recently.

And we know this because you've seen the banks' indices start to go warp. Look at XLF, for example. And you've seen bond yields come off because money's coming out of the safety of bonds and going back into stocks. But I'm telling you, in my opinion, this isn't over, this is a pause. There's an eerie calm going on right now.

Craig: I think you're spot on, my friend. And we're seeing that in the Fed Funds futures market, you know, the Fed can talk about no rate cuts, but we're now pricing in as many as four. I think we're at that point now where people can see that the pause and the pivot and all of that is upon us. And the US economy is obviously heading south as well. You've summarized beautifully what has happened this month.

I want to, in our remaining time, talk about gold and silver and maybe the mining shares, David. We are going to paint, unless all heck breaks loose on Friday, some rather significant and large candles, green ones, as a matter of fact, on the monthly chart. And we're also setting up some pretty high quarterly closes as well. By my eye, the highest quarterly close in COMEX gold ever is about 1,950 or so, and we're currently around 1,990. Let's start with gold. What do you see on that chart? And if you could, as a technician, how significant are all-time highs on something like the quarterly chart?

David: Well, I think history shows that when you start making higher highs and higher lows, i.e., the trend is up, not just on the daily or the weekly, but on the monthly and the quarterly, you can feel pretty good that this is going north in a big way. I mean, my process has been based on looking back at history. And I, you know, tend to focus on the baby steps, which is the short term, like the four-hour or the daily or the weekly. But I do watch the longer-term charts, especially the work of the likes of Patrick Kareem and his other compatriot over there whose name I forget off the top of my head. But those two guys are fantastic at analyzing these long-term patterns. And I think it's extremely encouraging.

But I just want to go back to the banking crisis. The banking crisis was what triggered the rally off 1,800, 1,900 up to over 2,000. And the reason why I went into that discussion on the banking crisis, not just for the reason that you brought it up, but also because that was a trigger for gold to go north. And the reason I brought it up, I went through it, is it's gonna come back again, and that's gonna cause gold to go even higher, which reflects what you're seeing in the long-term charts and the short-term charts.

And then let me pivot, excuse that use of the word, pivot, to the Fed. I said last week in my Sprott Money article, I believe the Fed's done. And even if they raised 25 basis points, they've literally told you, "We're done. You know, like, either we're done already and we're gonna let you know on May 3rd, or we're gonna hike 25 basis points and we're done. Or we cut." But they're done. So, that explains why you're seeing yields are going up because money's moving back into the bonds, into stocks. Stocks are doing great.

The Dixie's still falling, which doesn't hurt gold either. And you're seeing gold and silver are, on the short-term technicals, relatively overbought, close to extreme overbought, very bullish, which are typically contrarian signs that you should be looking south. Yeah, we could get a short-term pullback. But the bigger picture suggests that even if we do get a pullback, it's just another opportunity to buy. That this rally that began when the Fed slowed the rate hikes back on the November 2nd FOMC, this has got legs. And we haven't really even kicked off yet. We had a nice dramatic move-up initially, and we had the pull back to the low 1,800s. Now, we're going over 2,000 again. I think this is getting ready to blast off. And whether it's the May 3rd meeting, it's payrolls show that unemployment is rising fast, the inflation indicators come in low, I don't know what it is, or we get another banking crisis, another bank hits the headlines. These are just triggers for what's already predetermined to happen in my opinion.

I believe gold and silver are going a lot higher. I had originally had a target on the upside for like 2,250, 2,300. I'd like to be conservative unlike other people because you're more likely to reach them rather then saying, "Hey, we're going to 10,000." So I raised that to 2,600 and that still may be conservative. We could hit 3,000. That's where I think this is going. So going back to your question, Craig, do those breakouts on the monthly and quarterly charts mean anything? Hell, yes. Every single chart except for the very short term because the short term is where they're extremely overbought as I said, shows that we're going north.

And when people use those data points back to me and say, "Oh no, we're gonna get a pullback to 1,700 or something like that," I say, "No." If you look back at what happened from 2018 to 2020, the bullishness in gold remained extremely high the whole way up from 1,167 to the new record high, except for the March 2020 debacle. That was the stop. But if you look at the sentiment indicators, they were all bullish, and then they'd pull back a little bit or sideways, and then it kept going back up again, and you had higher highs and higher lows. The trend was firmly up and it was pretty much stuck in overbought condition all the way up.

It would go from overbought to neutral, overbought to neutral at least in the weekly chart and most of the daily charts. It rarely went oversold. So my point is, with all of the fuel that's loading up underneath gold and silver right now, with the Fed being done, another banking crisis is probably going to play out here in the next few months and so many other trigger points as well, I have a hard time being bearish on gold and silver right now. I mean, let's talk just something from layman's terms. You've just seen the banks get into trouble.

You've got Yellen saying that we're not, or she's not saying, or she is saying, I don't know anymore, whether they're gonna support the depositors of the smaller medium-sized banks. So what did we see happened to those deposits? All I know is I bought some silver when this was all going on the week after SVB collapsed and I had trouble getting through. And when I finally got through, "Oh yeah, we're extraordinarily busy." So I called a few dealers and I got the same response.

A lot of people were taking the money out the banks and putting it not just into bonds, but into gold and silver. And I see that happening again, actually getting worse, because, you know, people are losing confidence in a lot of things, but now it's the banks as well. And where do you run to safety? You know, T-bills, bonds, yes, gold and silver too. So I think, you know, everything is lining up in my process, especially on the fundamental side for going higher. And the charts, especially the longer charts just validate that.

Craig: Yeah. David, in our final minutes, I wanna ask you about the shares because I know a lot of folks that listen to this content at Sprott Money are following the mining shares, well, especially folks up in Canada where it's a big part of the, you know, the conversation, a lot of investors are in the mining sector. It's interesting, you know, the situation as you described, especially the long-term charts, looks to be significant to the upside, at least what the potential is. Shares though, you know, they've got their inbound balance, they've got their own issues, you know, with profitability and sustaining costs and that sort of thing.

But you can find proxies, I guess for this conversation. We'll use the GDX. When you look at that ETF, what do you see? Where does that stand? Are there levels that people should watch to where you think, "Okay, this thing is definitely now in an uptrend"?

David: Well, yeah. I think if we hit a new higher high in GDX shortly it will confirm that the rally is definitely on. And, you know, gold is the big brother of this sector, I mean, silver's the little brother. And the miners kick off the metals, but they also are correlated to stocks in general because they are shares. People were asking the question, why are the miners underperforming the metals? Well, look at the S&P, what's that doing? But now since the fears have resided on the banking crisis, look what happened. I think we've seen a string of green candles in the S&P and now we've got a golden cross in the Nasdaq.

It looks like, you know, a [inaudible 00:18:18] up has begun. It may not make sense without everything that's going on with the banks and everything that's going on with the economy and geopolitically, but like the price rules and it's going north. Well, if you've got the metals going up and you've got stocks going up, what do you think the miners are gonna do? You know, blast off. I don't wanna boil it down to just one simple hyperbolic word, but to be honest, that's what it looks like. It could incur a short-term pullback much like the metals, but yeah, I'm only looking higher from here.

I'm the wrong person to talk to right now for objective analysis because for once in a lifetime, everything seems to be really lining up for a big move in both the metals and miners and I'm just gonna... If you were on silverchartist.com, you'd know that I'm all in at this point. And so talking my book to be...

Craig: Can we relate that back lastly to those quarterly charts? I mean, the quarterly charts, the long-term cycles, long-term bull market is what gets the generalist excited, you know, the stockbroker excited, you know, people just looking to asset allocate to some sector that might have a higher alpha than other sectors. And, you know, our sector is so unloved, you just wonder if, again, this confirmation on the quarterly charts might drive some of that generalist investing attention.

David: Yeah. But it's also just that it's a safety measure right now as well. And that's why ordinary people are getting into it as well. That reminds me of the 1970s, you know, when the dollar was melting down and everybody start running into gold and silver. I talked to Tom over at Palisades about a month ago, and I honestly believe we're gonna get into a mania situation at some point, and you're gonna see a bubble start to develop in gold and silver. And you know me, I'm not one for hyperbole, I'm just telling it like I see it, and everything seems to be lining up for that.

And yes, the miners will do well also. The only concern I have is that if everything goes to pot with regard to the economy, the financial system, and we get a great reset, is that the miners may be the first stop for the authorities where in the sense that they start to nationalize them to, you know, to balance the ship as it were. You could talk about confiscation of metals, but the easy wins, especially here in Canada because a lot of mining goes on here, is to nationalize the miners. The other thing is miners tend to be used as less of a long-term investment vehicle, but a trading vehicle.

Well, if you make huge profits on the miners, which I think you will in the next, probably this year alone, but the next couple of years, when you sell them, what are you gonna get?

Craig: Dollars.

David: Yeah. Do you really want dollars? And that's another reason why I prefer physical metals over the miners even though the miners are probably gonna outperform the metals as they always do in bull markets, at least in the next year or so. But thinking long term, I'm heavier weighted towards physical metals than I am to miners.

Craig: And of course, you can get all the physical metal you want at sprottmoney.com. You like the segue, David?

David: Yes, I do. I love that. That was well done.

Craig: I'm the audio professional here, can you tell? Anyway...

David: One thing, you wanna make sure you have physical metals before they're all gone.

Craig: That's excellent point. That's exactly right. So, David, again, thank you so much, your expertise and freely sharing it on Twitter, silverchartist.com, but also through your weekly articles here at sprottmoney.com. I just encourage everybody to follow David. You need as many objective and independent voices as you can to guide you through this year and next. And I've known David for a long time, I can't give him a strong enough endorsement that he needs to be someone that's on your radar.

David, thank you so much for your time. Thank you, everyone, for listening. Again, please be sure to visit sprottmoney.com on your way out for all your precious metals needs, and we will definitely have another monthly wrap-up segment for you at what will be the end of a volatile month of April. Thanks for listening, everyone.