murphy metal monday

Central to my thesis is that commercial bank credit will contract sharply in response to rising interest rates and bond yields. This retrenchment is already ending the Everything Bubble in financial asset values, is beginning to undermine gross domestic product, and given record levels of balance sheet leverage, makes a major banking crisis virtually impossible to avoid. Central banks that are already in a parlous state of their own will be tasked with underwriting the entire credit system.
–Alasdair Macleod, London Economist

It seems a high percentage of the public is holding off on making any changes in their portfolios as the markets in general are currently directionless. As mentioned multiple times in my recent emails, gold and silver were very oversold and overdue for a rally. However, with spot gold and silver prices drifting sideways to lower, most of the US retail investors had little interest in precious metals and most of all investors interested in gold and silver for the first time decided to “wait and see.” Despite the incredibly bullish supply/demand fundamentals and clear evidence of price manipulation driving prices abnormally low, very few people decided to step up to the plate.

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So, since it is very common for the public not to buy at major bottoms, it was not surprising to see the precious metals move up in price, including several $50 up days for gold. Fortunately, the set up for even higher prices remains intact and the opportunity remains extremely good.

More evidence of a very bullish supply/demand picture was released this week as the Silver Institute indicated that in 2022, silver total demand had surged by the largest amount in history, 16% over 2021 to 1.21 billion oz, while total silver supply only grew by 2% to 1.017 billion oz, resulting in the largest physical deficit (194 million oz) in multi-decades. Whether talking exchange inventories or inventories at the wholesale and retail levels, supplies are tight. Combined with rising physical demand, prices can only surge in time and probably never look back.

Other news of note was the implosion of FTX, once the world’s third largest crypto exchange. After garnering the support and backing of many high-profile individuals and institutions, it was discovered that FTX was running a Ponzi scheme of sorts, resulting in a filing for bankruptcy and billions of dollars disappearing. Eventually the investors might recoup a small percentage of their money, but the projected wait could be years or decades. My guess is that some form of crypto has a future place in the world of investments, but the industry is still relatively new and extremely volatile. With still so many unknowns in crypto, I prefer owning physical gold and silver and the warm and fuzzy feeling it gives me.

Often mentioned Mike Savage of Raymond James had the following to say this weekend,

“I was always taught to buy low and sell high. That is a hard thing to do for most because most people chase what has done well in the recent past rather than trying to determine where the economies and “markets” may be headed.How sure are you that stocks will continue to perform well with the economy weakening? While it may appear that stocks won’t fall right away- how sustainable are any rallies we are seeing?How sure are you that bonds will recover after a 40-year bull market appears to have ended?How sure are you that Real Estate will continue to rise as interest rate increases and a falling economy make affordability a MAJOR issue for most Americans? How sure are you that the dollars you have saved over your lifetime will sustain you in a prolonged period of inflation? Do you have a backup plan? Do you have hard assets that you can fall back upon? Serious questions that, in my opinion, should be asked of everyone.”