Silver Alert: The Real Reason Prices Are Surging

Precious Metals & Economic Concerns: A Detailed Analysis (January 13th, 2024)

Key Concepts:

• CPI (Consumer Price Index): A measure of the average change over time in the prices paid by urban consumers for a basket of consumer goods and services.
• Exogenous Variables: Independent variables that are not caused by any factors under consideration within a model. In this context, factors influencing recession timing.
• Parabolic Move: A rapid and accelerating increase in price, often unsustainable.
• Comex: The Commodity Exchange, a futures and options market.
• Fabricators: Businesses that manufacture products using raw materials like precious and base metals.
• Liquidity: The ease with which an asset can be bought or sold without affecting its price.
• Core Inflation: Inflation excluding volatile food and energy prices.

I. Market Overview & Initial Drivers (January 13th, 2024)

As of 10:40 AM EST on Tuesday, January 13th, precious metals (gold, silver, platinum, palladium) and base metals (copper, aluminum) experienced significant price increases. This surge coincided with the revelation on Sunday evening that the U.S. Department of Justice was launching a criminal investigation into potential wrongdoing at the Federal Reserve Board, specifically regarding cost overruns in its headquarters modernization. Jeffrey Christian of CPM Group emphasizes this development as a critical factor undermining confidence in the Federal Reserve’s independence, the dollar, and the U.S. Treasury market. He notes that while other global issues were already driving investment into these metals, the DOJ investigation acted as a catalyst, overshadowing previous concerns.

II. CPM Group Market Alerts & Recession Timing

CPM Group recently released two market alerts for its clients. The first, titled “Timing the Next Recession,” addresses the inherent difficulty in accurately predicting recessions. The report highlights that no consistent pattern exists in the interplay of variables like inflation, real GDP, unemployment, manufacturing output, and interest rates leading up to recessions. Christian stresses that the complex and numerous factors involved make precise timing, depth, and duration prediction extremely challenging. The second alert focused on the implications of the DOJ investigation into the Federal Reserve. Clients can access these reports via [email protected] or through the CPM Group website (cpmgroup.com).

III. Precious Metals Price Performance & Analysis

• Gold: Prices have risen sharply, exceeding $2,600 to over $2,644 (March Comex contract) – a 67-70% increase year-over-year from $1,660. Technicians identify a potential target of $5,200 based on a measured move starting in late August. The primary driver is investment demand, fueled by ongoing global uncertainties.
• Silver: Silver prices have also increased substantially. Christian debunks a claim of a single investor acquiring 60 million ounces of silver, clarifying that while large holdings exist, no recent massive purchase has been verified. Interestingly, two major Chinese solar panel manufacturers are transitioning from silver to copper in their panels due to improved efficiency with copper technology. Silver reached $29.22 (active March contract).
• Platinum & Palladium: Platinum prices have reached record levels, surpassing those seen in early 2008 during South African production disruptions. Platinum reached $2,422 (active April contract) and Palladium reached $1,952 (active March contract). Both are experiencing increased demand alongside gold and silver.

Christian cautions about potential profit-taking after the recent parabolic moves in these metals, particularly by short-term investors.

IV. Base Metals & Inventory Building

Base metals like copper and aluminum are also experiencing price increases. Fabricators are building inventories due to concerns about supply disruptions stemming from tariffs, trade restrictions, and broader geopolitical instability. The weakening U.S. dollar (with 20% of global wealth held in USD) is also contributing to this trend, as investors and corporations seek to protect their wealth by investing in metals.

V. Consumer Price Index (CPI) Data – December Report

The U.S. Bureau of Labor Statistics released CPI data for December. Key findings include:

• Month-to-Month CPI Increase: 0.3%, still elevated compared to the Federal Reserve’s targets.
• Annual CPI Increase (Headline): 2.7%.
• Core Inflation (Excluding Food & Energy): 4% in December.
• Core Inflation (Excluding Food & Energy & Electricity): 2.6%.
• Key Drivers of Inflation: Housing, food (both at home and restaurants), and services.
• Price Weakness: Observed in non-food and non-energy commodities.

Christian notes that persistent inflation above long-term targets could hinder the Trump administration’s desire for lower interest rates.

VI. Political & Institutional Concerns

The DOJ investigation into the Federal Reserve is viewed as a significant threat to the institution’s independence. Christian emphasizes that undermining the Fed’s independence undermines the dollar, Treasury market, and overall economic stability. He also notes criticism from within Congress and even the U.S. Treasury itself regarding the investigation. Furthermore, a 75% year-over-year reduction in new job creation adds to the concerning economic picture.

VII. CPM Group Resources & Future Outlook

CPM Group will host a client question-and-answer forum later this month. Their annual yearbooks for gold, silver, and platinum group metals will be released in March, May, and July, respectively. A special market commentary from December regarding the long-term shift in investment demand for gold and silver is available on their website. This commentary highlights the emergence of investor demand exceeding fabrication demand for silver around 2005.

VIII. Concluding Remarks

Christian concludes with a call for positive action, acknowledging the prevalence of negative forces in the world. He emphasizes the need for individuals to contribute to positive change and will continue providing market updates on Friday.