May 2020
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We'll keep this one short. It's official. We are headed for massive change. Yet nobody is sure exactly what that change is going to bring. We have history. We have trends. We have human nature. That is the best we can do to project forward. However, when there is no real historical precedent for the global disruption that we have experienced, trends and human nature become a bit less reliable as indicators, at least in the short term. When authorities can re-write the rules on-the-fly, then how can one predict what tomorrow's rules will be?
The answer is, you can't. Therefore we feel the best approach is to stay focused on the big mega-trends such as the decentralization of the world. When economies come under severe distress, decision making moves local. What started out as long term moves toward decentralization of information and finance is quickly moving to include a rapid re-working of global supply chains across nearly every industry.
Will there finally come a day when the beef, chicken, or vegetables on your plate come from fifteen miles away instead of fifteen hundred? It's certainly looking more possible by the week. How does that impact both economic and personal relationships? The answer to those questions will be sought after in the coming months and years as move toward an exciting and possibly much more personally fulfilling future.
All the best,
Jeremy and Josh
There has never been a more important time to build your cornerstone.
Trillions of dollars of new borrowing and spending by governments around the world with trillions more likely to come. People have run out of words to describe the situation. Unprecedented doesn't do it justice. Gold and silver therefore, will be vital components in any portfolio as the world gropes to understand what's coming. That's really about all we can say. So that is all we will say.
What Do the Charts Tell Us?
The gold and silver charts look like a tale between two metals. It is the best of times for gold investors and it is the worst of times (maybe frustrating is a better word) for silver investors. Why have the metals diverged?
Gold is at multi-year highs and the chart looks strong. The plunge in late March to $1450 held and the chart now has multiple uptrend lines for support. For the past several weeks, there has been a consolidation in the $1700 to $1750 range (blue circle). All very healthy signs of a continuance of this bull market.
At some point, gold will likely pull back and test the first uptrend line. Whether it holds or not could give us a clue as to the price action for the next 12 to 24 months. As much as investors want gold to shoot to the moon, history tells us that at some point in the next few years, that second uptrend line will also be tested. That's history speaking, not us.
The price of silver has obviously substantially lagged gold. The reason is actually straight forward. Unlike gold, the vast majority of silver is purchased for industrial purposes. If we are facing an imminent major recession, it makes sense that the market is going to price in loss of that demand.
However, recent history has shown that there can be a tipping point where investor demand outstrips the loss of industrial demand. This happened in mid 2010 and silver took off, rising from $17 to nearly $50 in just nine months. The gold to silver ratio dropped from over 80 to around 30 during that time. This is just what silver does. It is why silver investors have to be more patient and able to ride out volatility. It's day is coming. You just never know exactly when it will be. However, one sign to watch is a breakout over the multi-year $18.75 resistance zone (yellow line).
It's time to wait and see.
We get it. Everyone is starting to burn out on all the news surrounding "social distancing," COVID-19, a "new normal," etc. etc. So, we are not going to feed that beast in this newsletter.
What is of supreme importance over the short term is how the "re-opening" of the economy progresses. State and local governments are making up their rules on-the-fly, many times with little to no reference to actual data and not grounded in existing law - or at least constitutional law.
The next two months will be critical in this respect. There seems to be an emerging general trend where rules are made and implemented almost as trial balloons. Then they are adjusted according to public reaction. And the general public reaction is signaling that they are ready to be done with the lock-downs.
While this kind of uncertainty does provide support for precious metals prices, the real story over the next sixty days will be the interplay between the citizens of the world and their government officials at all levels. We suspect that by the time of our next newsletter, it may very well be what is dominating the news cycle.
At OWNx, we are optimists. We see tremendous opportunity over the medium and long term to create a better world than what we had pre COVID. We believe that people who stand on time tested principles will ultimately prevail. It's what happens in the short term that has yet to be revealed.
Suggested Reading
Five Viral Lessons
For thousands of years, people who lived through what we call “history” didn’t realize it. We are the exceptions. We’re seeing history and we know it. - John Mauldin
The Changing World Order - Ray Dalio
Ray Dalio has garnered a great deal of respect as a futurist. He opens his new book with this statement: "As explained in the Introduction, the world order is now rapidly shifting in important ways that have never happened in our lifetimes but have happened many times before in history. My objective is to show you those cases and the mechanics that drove them and, with that perspective, attempt to imagine the future."
Note: The OWNx office will be closed on July 3rd for Independence Day weekend.