Silver Price Still Underperforming Gold / Commodities / Gold & Silver 2023
While the yellow metal hit a newrecord high, the silver price remains below its post-pandemic peak.
Recession RisksLoom Over Silver
While gold has dominated the headlines recently,silver and mining stocks have been material underperformers. And with thelatter better barometers of investors’ enthusiasm, their relative weaknessshould concern the permabulls.
Likewise, with weak economic dataunlikely to help silver when investors fully digest theramifications (look past pivot optimism), a 2024 recession could push silverback to its 2022 lows.
For example, S&P Global released itsU.S. Services PMI on Dec. 5. Chris Williamson, Chief Business Economist atS&P Global Market Intelligence, said:
“Firms providing both goods and serviceshave become increasingly concerned about excessive staffing levels in the faceof weakened demand, resulting in the smallest overall jobs gain recorded by thesurvey since the early pandemic lockdowns of 2020.”
Furthermore, after “evidence of sparecapacity led to the non-replacement of voluntary leavers,” it’s another signthat the U.S. labor market has weakened. And while we warned that a recession, not inflation, is the nextbearish catalyst, lower pricing pressures are normal when demand wanes atthis part of the economic cycle.
Please see below:
To explain, services inflation has beenthe primary driver of the pricing pressures, as manufacturing PMIs havestruggled. Thus, if (when) outright deflation occurs, risk assets like the PMsand theS&P 500 should come under heavy pressure.
Continuing the theme, Challenger, Grayand Christmas Inc. released its job cuts report on Dec. 7. An excerpt read:
“So far this year, companies haveannounced plans to cut 686,860 jobs, a 115% increase from the 320,173 cutsannounced in the same period last year. It is the highest January-Novembertotal since 2020, when 2,227,725 cuts were recorded. Prior to 2020, it is the highest year-to-date total since 1,242,936cuts were announced through November 2009.”
The report added:
“Companies are expecting slower growth inthe coming months, particularly in industries that support consumers.”
Plus, with 2024 looking nothing like 2021or 2022, the report provided more evidence of a labor market confrontingserious problems, which should help spur the USD Index asvolatility increases.
Please see below:
Uh-Oh Canada
The Bank of Canada (BoC) held itsovernight lending rate steady on Dec. 6, as higher long-term interest rateshave materially impacted the Canadian economy. The statement read:
“In Canada, economic growth stalledthrough the middle quarters of 2023. Real GDP contracted at a rate of 1.1% inthe third quarter, following growth of 1.4% in the second quarter. Higherinterest rates are clearly restraining spending: consumption growth in the lasttwo quarters was close to zero, and business investment has been volatile butessentially flat over the past year.”
And with demand destruction poised to hitits neighbor next, the BoC added:
“In the United States, growth has beenstronger than expected, led by robust consumer spending, but is likely toweaken in the months ahead as past policy rate increases work their way throughthe economy.”
So, while risk assets have celebratedthis weakness, oil prices have run for cover.And with crude’s collapse likely to filter into other assets once they catchon, silver and mining stocks should be among the hardest hit when the dramaunfolds.
Finally, Walmart CEO Doug McMillon saidthat unpredictability could reign in 2024, even as deflation unfolds across theU.S.’ largest retailer. Thus, while securities are priced for a perfectlanding, plenty of indicators signal a much different outcome.
Overall, silver’s strength is much moresemblance than substance, as rate cuts typically occur when economic growthfalters. And while investors assume they can skip the recession volatility,history suggests otherwise. As such, we believe assets like silver, the GDXJETF and the S&P 500 should face selling pressure in the monthsahead.
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By Alex Demolitor
Alex Demolitor hails from Canada, and is across-asset strategist who has extensive macroeconomic experience. He hascompleted the Chartered Financial Analyst (CFA) program and specializes inpredicting the fundamental events that will impact assets in the stock,commodity, bond, and FX markets. His analyses are published at GoldPriceForecast.com.
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