Image
December 2022


It appears as though we are entering a season of heightened market volatility. The financial system and geopolitical instability are realities that the broader markets are loath to accept. Few want to consider the challenging future they pose, and most want to return to the "good ole' days" of the bull market that began in early 2009.  That was evident on November 30th when the DOW roared ahead by 4% on the back of the Federal Reserve indicating that they will soften the pace of rate hikes because of the slowing economy.

Meanwhile, capital flows to the United States pushed the US dollar recently to twenty-year highs, which generally puts downward pressure on the price of gold. The economy is weakening in the face of persistent inflation, which historically supports gold prices. Then there is the war in Ukraine, which seems ready to expand or conclude. Nobody knows for sure which way it will go. China is seeing political unrest unlike anything since Tiananmen Square in 1989. Europe is just now heading into winter with depleted energy stockpiles and access to natural gas via the Nordstream pipelines. Finally, the elections in the United States insured continued division and now, political stagnation for the next two years.

The world has not been in this state of turmoil since World War II. As volatility increases in the coming year, we believe this will put a floor under the price of gold and by association, silver. Why? Gold has been slowly but steadily removed as the center of the monetary world since the collapse of the Bretton Woods agreement. It has since increasingly become insurance against fiat monetary systems and government instability.

We have both of those in large measure. Our only conclusion is that we have entered a period where while price swings up and down will increase. Yet, gold will once again assert itself as a primary tangible asset of choice just as it has for thousands of years. Now more than at any time in recent history it seems as though it's time to own this critical asset.

The OWNx Team

Gold and Silver

What Do the Charts Say?

Image
Image
Once again, we are looking at the four-year charts for gold and silver. It's a pretty short story on what the charts are telling us this time around. Both have decisively broken out of a well-defined down channel established over the last 8 months. They also have bounced nicely off of an area of congestion. For gold, that was in the $1,625 to $1,675 range, and for silver, it was between $17.25 to $19. This is good price action. The run-up in gold from $1,800 in February to near $2,075 in March was too much too soon. With a new base forming over the last several months, it is probable that a short-term reversal to the upside is in play with a move back to the $1,850 range, which is another area of chart congestion. If that occurs, we could see silver back in the mid-twentys. We will know by the next newsletter if that is playing out.

The Gold/Silver Ratio

Today we have access to news from a seemingly unlimited number of sources. With all that is happening in the world today, it can be a bit overwhelming. That's why during the period from Thanksgiving to the New Year, many people try to unplug from the news and focus on the Holiday season and family. So rather than link to some interesting articles, we thought we would cover a subject that some of you are aware of, but many likely are not - the gold to silver ratio.

Simply put, this ratio shows how many ounces of silver it takes to buy an ounce of gold. The chart below shows how dramatically this can change over time.

Image

At times, gold and silver become cheap or expensive relative to one another. Some traders in precious metals, therefore, use this ratio to swap between holdings of gold and silver. Since the financial crisis of 2008, there have been three times when the gold-to-silver ratio moved rapidly to extremes. In 2011, with the ratio near 30, these traders would have swapped their silver holdings for gold. When the pandemic hit in 2020, they would have swapped their gold holdings for silver. When the ratio returned to more recent historical norms, they would re-balance their holdings and increase the total number of ounces owned.

This certainly isn't a trading strategy for everyone. At OWNx we have always encouraged a steady accumulation of the metals. However, it is something to be aware of as we are likely moving into more periods of volatility where for some of our clients, it might make sense to consider. As always, we recommend you get advice from your financial planner before undertaking any new strategies such as this.

We wish you all a great Christmas season. We encourage everyone to remain focused on what's important- family, friends, and the reason for the season. 2023 is going to be quite a ride for all of us.

OWNx offices will be closed December 23rd and 26th and on New Years day.