Monthly Wrap-Up With Host Craig Hemke and Special Guest David Brady
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On this episode of "Monthly Wrap-Up" host Craig Hemke and special guest David Brady discuss the recent developments in the financial markets, focusing on the precious metals sector, particularly gold and silver. They delve into fluctuations in metal prices, shifts in market sentiment, and the Federal Reserve's policy decisions. David Brady emphasizes the importance of assessing sentiment and technical indicators to make informed investment decisions, pointing out that extreme market sentiment often precedes significant price moves.
Watch on YouTube: https://www.youtube.com/watch?v=HShIFM4qtsI
Craig: Well, hello again, everyone, from "Sprott Money News" and sprottmoney.com. It is time to wrap up the month of July. It's been a crazy month. And boy, it looks like we're gonna have some crazy months ahead as we move toward the back third or so of 2023. Joining me to wrap up this month is my old friend, David Brady. David, like me, a columnist at Sprott Money. You can find his work at silverchartist.com. You can also find him on Twitter @GlobalProTrader. And like I said, you can find him with a weekly column here at sprottmoney.com under the Insights tab. David, thank you for spending some time with me.
David: Oh, it's great to be back with you, Craig.
Craig: Now, we got a lot to talk about, no doubt about that, with prices moving all over the place. If anything, I wanna remind everybody, though, summer, a great time. Well, what isn't a great time to be adding to your stack? The summer sale is still in progress at Sprott Money, the Summer Bullion Sale. Go to sprottmoney.com. You will find great deals through the month of August all the way, I think, to the August 25th or so. So, be sure to check out their site, look for some great deals on bullion, bullion storage. You can also give 'em a call at (888) 861-0775. Somebody will be happy to help you out.
Thankfully, David is happy to help us out and make some sense of all this. As the month has progressed, we've seen the dollar go down, the dollar go back up, the metals go up, the metals come back down. David, just this week as we record this on Friday the 28th, we look pretty good after the Fed, then we got a whole bunch of pretty solid economic data outta the U.S. on Thursday and everything went right back down. As we wrap up this month, before we look ahead, what really caught your eye, and what stood out?
David: Well, you know, going into the ECB and the Fed, one of the reasons why the...or the reasons for the dollar to continue lower were we got weaker than expected payrolls, and we got weaker than expected CPI and PPI. And what puzzles me is why the Fed is still pounding the table on inflation to the extent that they are. Because if you look at what happens today, actually, I think in Core PCE, which is their primary inflation indicator, fell from 4.6% to 4.1%.
My point is, how fast do you need this to go down? And you've already raised rates over 5%. Shouldn't you pause and see what the effect is? Because based on what we just saw in Core PCE, and prior to that, the CPI and the PPI, it's already taking care of itself. So, going back to the dollar, that's what tripped it up and pushed it down below 100, was this weaker data.
And then going into the meeting just a couple of days ago, the Fed was expected to raise rates 25. That was already baked in. You just look up the CME tool and you'll see the probability was 100%. So, that was already baked in the cake. The issue was the commons going forward, and they were kind of like, "Eh, no big deal." And I also said that, you know, watch for the ECB too, because in prior meetings, we've had the case where... And it's interesting how they've kind of followed each other one day after the next. I don't know if that's by design, probably is.
But I said, wait for the ECB, because in previous meetings, we've had the ECB come out and surprise in some way or another, usually in the common section as usual. And that has changed the dynamic dramatically. Didn't happen this time either. That was basically a yawn, you know? So, what happened was then the following day, following morning, and I'd love to get your two cents on this, we had the GDP data, we had durable goods orders, and we had home sales. All were unexpectedly surprisingly strong.
Now, I posted this on Twitter and I went and looked out... Wait, hold on a second. Retail sales adjusted for inflation were down 1.5% year over year. Retail sales or consumer spending, whatever you wanna call it, are 70% of the economy. Yet, you're telling me GDP is going gangbusters? Okay.
But here's the upside - how much worse can it get? You know, so a lot of people are suffering a little pain here, especially in silver. I posted the chart on Twitter yesterday, and which went zoomph! And I warned about this earlier on in the week because, and you watch this religiously like I do as well, the COT data showed that the shorts on the silver...on the Comex silver jumped dramatically on the part of the banks. Well, that tells you something's coming. And here we are.
Now, the banks may have, you know, covered some of those shorts with this dump. We might get a little further on the downside, but I am...everybody's getting, you know, bearish again. We had a massive run-up off the November 3rd low or September for silver, but for gold, it was November 3rd when the Fed slowed rate hikes. And now we're just having a nice, healthy pullback.
And yet, you know, we have payrolls coming up next week, we've got the ISMs, we've got some CPI data coming out of Europe as well. But if you look at what the current data tells us, unless we get a dramatic jump in those numbers, yeah, the probability for a September rate hike can go to 100%. Then we'll have to look at the next FOMC.
But I'm already seeing banks like Rabobank thinking that the Fed is done. So, how much further are they gonna go? The point is, the risk-reward in the metals and miners, at this point, is to the upside. And that doesn't mean we can't go lower. It just means that the risk is relatively small, the reward is enormous. So, that's where I sit currently with regard to Fed policy and what's happened in the past few days.
And I could keep going here, but I'll just add this. The Dixie, the Dixie's gotta bounce. I call that below 100. And I said this could go up as high as 102. I think we're at 101.40, give or take now. It could even go up to 106, to be honest. So, it can go a little higher, sure. But unless all hell breaks out in Europe and drives the Euro lower, the conditions are in place now for a rebound pretty soon. And my parameters on gold are 1900 on the downside as key support. 2,000 is the number I'm focused on. Once we get back above 2,000, it's plain sailing, in my opinion.
Craig: We've been on these Sprott Money calls, and on my side, we've been talking all year about how this is analogous to 2010 into 2018, you know, which were also years where the Fed started with all this hawkish rhetoric and even some, you know, rate hikes or whatever. But by the middle of the year and toward the end of the year, it became clear that there was gonna be the shift, whether it was an actual shift or whether it was a new QE program, whatever.
Once that actually happened, you know, everything got held off, held off, we're just waiting for the all-clear, in a sense. And once the actual shift happened, you know, pew, up we go. To me, that explains a lot of the resilience that we see. Even, you know, today as we speak, gold got down yesterday 1,940-something, and now even today, you know, rallied back up to 1,960.
So, as we look forward, David, as we get into August, the good news is there's not another FOMC meeting until September. So, we got that going for us. However, it does bring the big economic event of the Jackson Hole Forum where all the central bankers in the world descend on Jackson. Boy, one place you don't want to be in August is Jackson Hole with all those criminals in town. Nonetheless, they all show up there. And Powell will give a speech later this month, and that might be kind of the key to the whole month. But I know you follow the metals closely. This is typically a pretty strong seasonal time of the year for medals prices too. Have you seen that?
David: Yeah. Seasonally, it's a very good month for gold and silver. Personally, that's a backdrop to the analysis that I do, flypast, [SP] and cycles, and so forth. But yeah, everything's lining up for that. And what could he say that he hasn't already said? I mean, it's like we're still focused on, I'll use the word crushing inflation because, to me, it's already falling. I do expect a resurgence, by the way. We can talk about that separately. But the only surprise that I would have is if...I don't know what rabbit he's gonna pull out of a hat and be hawkish, because they've already done that for months, over a year now. So, if anything surprises, it may be to the dovish side. And if that happens, it's [crosstalk 00:11:09.249] time.
David: Now, talking a little broader about this, we haven't talked about what could be a minefield for gold and silver, what are the caveats, and stocks? Stocks have had a great run off the lows. I mean, we have retraced, I did the math this morning, 85% of the entire drop from the all-time high, 85%. So, we're within 15% of that drop of a new all-time high.
Sentiment is extremely bullish. The specs are massively long. If we do get some kind of... We'll either get two things, either a mini-crash to let air out of the tires, and then we go back up even higher, or we get the main event because we are going to get a crash. From my perspective, that's a no-brainer. But I don't know which one's gonna play out.
But if we get a mini-crash, you and I both know... I mean, you can use the 2008 example for the main one, but we know in general that when stocks reverse, they take gold and silver down initially, initially. And that same goes for the main events. When we get the big kahuna, I expect gold and silver to get a decent pullback. But what happens next?
As Rick Rule wisely said once, and it all stuck with me, it's not the crisis that causes gold and silver to go up. It's the response to the crisis that drives gold and silver higher. And what do you think the Fed's gonna do? They're gonna do what they always do. They're gonna cut rates and they're going to go back to QE.
The thing here for me is this time around, given the damage to the economy, despite the data that we're being given, I don't believe that's gonna have the same effect this time around. I think the markets will peak, and then we're going down, down, down. All the rate cuts and QE that they throw at the market, all it'll do is slow the fall. It won't stop it. But for gas and...or sorry, for gold and silver, it's like gasoline on a fireplace, right? I mean, that's when it really takes off.
But in the very short term, if that happens, that could bring down gold and silver temporarily. But I don't think we're there yet. So, because I see a lot of people calling for this, and my primary expectation is that we get a mini pullback first, and then we go up higher, and then the main event because I have my eye in October because October is the worst month for stocks. You know...
Craig: Less seasonality.
David: Yeah. I mean, look at all the crashes through history, most of them are in October, right?
David: And I don't expect this to be different. So, you've got that issue hanging out there. The other one I see is the Fed now has been rolled out. Well, that's the pathway to CBDCs. And this is both a positive and a negative. I'll focus on the positive. You'll be required, I believe, to get a digital ID in order to be able to get the CBDC, right? And in order to promote participation, I believe they're gonna roll out UBI, universal basic income. Pacify the masses, right?
Well, that's basically money printing. You know, just press the keys and there's more money in there, and, you know, yada, yada, yada. And more money chasing fewer goods, the same or fewer goods and services because the economy's going this way. I don't care what the data says, the economy's going this way. Just look at the number of bankruptcies. What led you to gold and silver?
So, I guess what I'm saying, and I can get to bonds as well, I expect yields to go lower, but I guess where I'm going with this is we get bogged down in the short-term gyrations in the markets, and people, like, very easily get bearish, apathetic, you know, based on what's happened even in silver, you know, in the past day or so. You have to look at the bigger picture.
The bigger picture still is to the upside, because stocks are gonna come off, the Fed is going to respond, and they're gonna roll out CBDCs and then UBI. What do you think gold and silver are gonna do under those...? You can't print gold and silver, but you can... You don't even have to print the paper anymore. You just hit a keyboard. I mean, it's obvious if you step back and look what's happening. And I think it's inevitable. I really do.
And I'll take this moment to say that this is the perfect forum for this. Whoever out there is listening to this, if you don't have any physical gold and silver at this point, get some because an insurance policy for what's coming, at least an insurance policy. It could make some people uber-wealthy. But if you don't...if you're not that well healed, at least get some so that you have an insurance policy because I guarantee you, we're going to get inflation and then deflation when the Fed pulls the plug on all of these policies, and then you get your great reset and so forth.
And the only safe harbor is gold and silver. Physical gold and silver. And maybe physical palladium, physical platinum, but they're more industrial metals. Bitcoin, don't talk to me about Bitcoin. I am along the crypto miners because I think in the short term, it's a great trade. But the source of their power is their total control of money and the supply of money. You think they're gonna see that...some of that to Bitcoin, I don't think so. And all of this advertising from BlackRock and so forth, and Larry Fink saying, "Oh, Bitcoin's going to, you know, be better than all the Central Bank digital currencies," and I'm not buying it. I think it's just cheerleading.
Craig: You mentioned that. Reminds me of another thing that's pending for August, and that's at BRICS Summit where, you know, there's all this talk about some potential new trading unit or trading currency or whatever they might announce, you know, that would have a gold backing to give it confidence. And I'm thinking, as I'm listening to you talk, I'm thinking about this and I'm thinking, "Oh, I'm sure, you know, the banks are just gonna stand down and let the gold price skyrocket if that happens." So, I'd say that's probably another risk that we might wanna keep in mind as we go through this month as the banks protect their longstanding short positions, at least initially.
David, I don't want to... I could go on with you forever, obviously, and you and I could sit and talk all afternoon. But I wanna focus, in our last remaining minutes, about a couple of the initiatives you are working on.
David: I've written a couple of articles called "Emotion Is the Death of Wealth." And you'll understand this, Craig, in the sense that I've never seen sentiments so volatile in any sector like it is in gold and silver because people are so passionate and religious about it. So, that makes sentiments so important.
But human nature fights objectivity in the sense that when... Gold never bottoms when it's bullish. It bottoms when it's extreme bearish. But that's when everybody's throwing in the tail. "That's the time you should be buying." And it's the same at the top when they're like, "Oh, we're going to 2,400 next, yeah." And everybody's bullish. And what happens?
So, human nature is to follow the crowd. You need to be a little bit more contrarian, but especially at extremes. And that's the beauty of my process. I just look for extremes and the COT data, sentiment, technicals, and when they all line up, I'm like, "Hey, guys, caution here. Warning. I know we all won't believe it's gonna keep going up."
Now, trend can undermine that, but 90% of the time, it holds because that's how I developed it. I went back to 2006 and used all the data on every asset, not just gold, silver, nap, gas, soybeans, you name it. And it's the same patterns every single time. My point is, this isn't rocket science. Anybody can do this. Just run the charts for all these things and look at the various indicators and what they said at those points, and then just extrapolate it forward. And it's relatively easy.
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