Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.
Coming up Greg Weldon of Weldon Financial and Gold-Guru joins me for an interview you simply must stick around to hear. Greg is ready to make another bold call on the precious metals, having nailed previous moves in both gold and silver perfectly right here on this podcast earlier this year. Greg also tells us why he believes the trade deal with China is keeping many Americans hopelessly distracted about the real issues in the economy -- and why a deal there will simply not be enough to keep the economy going strong. So be sure to check out my interview with Greg Weldon, coming up after this week’s market update.
Precious metals markets are ending the week on a sour note – and the general stock market is rallying.
Stocks started the month in negative territory after President Donald Trump said that a trade deal with China could be delayed. Trump suggested that China would prefer to wait until after next year’s election.
The President apparently believes he can get re-elected without a trade deal. But he has staked a lot of his presidential prestige on a rising stock market. One way or another, his administration will be working to juice financial markets and the economy in the months ahead.
He obviously doesn’t believe he will be forced out of office through impeachment. Investors don’t believe Trump will actually be removed from office. Even the House Democrats leading the impeachment charge don’t believe Trump will actually be removed from office! At this point, nobody does.
It’s a sideshow contest to see which party will score the most political points – as they position themselves for the 2020 elections. If more Democrats than Republicans end up breaking ranks on impeachment votes, it would be a huge embarrassment for Nancy Pelosi, a huge problem for the eventual Democrat nominee for president, and a huge win for Trump.
Will precious metals prove to be a winning investment in this environment? Well, they certainly haven’t been a losing investment this year. Gold and silver may be gathering strength for something bigger ahead.
After a pullback today in metals as a result of a better than expected jobs report, gold is now essentially unchanged for a second week in a row and trades at $1,464 per ounce.
Silver, meanwhile, was trading around the $17 level for a fourth straight week but it’s taking it on the chin today with prices dipping below and currently coming in at $16.67 an ounce to register a 2.5% weekly decline as of this Friday morning recording.
Silver’s trading range has been tightly compressed, which usually signals a big directional move ahead. One clue as to which direction prices will head next can be gleaned from the action in the silver mining stocks.
The major silver miners ETF is exhibiting a positive divergence, advancing over 4% to break out above multi-week resistance levels. This indicator is somewhat compromised by the fact that most so-called silver mining companies end up deriving most of their business from other metals.
Nevertheless, we are seeing a similar positive divergence with the GDX gold miners. The ETF is now trading above its 50-day moving average for the first time since mid-September. Gold itself closed just below its 50-day average on Thursday.
Precious metals mining stocks often lead the metals and amplify their moves. They could be setting up a more bullish environment for silver in particular. Top producers have reduced their silver output by 4.4% year over year even as they have increased their gold production.
It makes sense from a business perspective since silver has traded at an extreme discount to gold this year. The market told mining companies that it valued their gold ounces much more dearly than their silver ounces. But the decline in silver production in turn means that the gold/silver ratio is likely to narrow in favor of silver.
We have already seen some narrowing since the summer. There is a lot more yet to come if the gold/silver ratio is to return back to its historically normal range.
The surest way to profit from the ratio trade is simply to own the most out of favor metal – in this case silver. There are many advantages to owning physical bullion and avoiding futures, ETFs, mining stocks, and other paper proxies for the metal. Bullion carries considerably less risk and its market value more reliably reflects the true physical market.
One downside to precious metals ownership is the discriminatory tax treatment investors may face at the federal and state level.
The Sound Money Index is the first index of its kind, ranking all 50 states using twelve different criteria to determine which states maintain the most pro- and anti-sound money policies in the country.
The Sound Money Index evaluates each state’s sales and income tax policies involving precious metals. It also scores states on whether they recognize the monetary role of gold and silver under the U.S. Constitution, whether they hold pension, reserves, or debt denominated in gold or silver, and whether they impose dealer harassment laws.
Wyoming, Texas, and Utah emerged the best states on sound money in the nation. But unfortunately, Maine, Tennessee, Ohio, and Kentucky joined Vermont, Arkansas, and New Jersey as the worst states on the issue.
Regardless of where you live, you can certainly own precious metals and benefit from the diversification and protection they provide. It just pays to be aware of how you’ll be taxed, if at all, and in what areas you can push your state’s elected officials to enact pro-sound money policies.
The 2019 Sound Money Index is now posted on our web site at MoneyMetals.com.
Well now, without further delay, let’s get right to this week’s exclusive interview.
Mike Gleason: It is my privilege now to welcome back our good friend Greg Weldon, CEO and president of Weldon Financial. Greg has decades of market research and trading experience specializing in the metals and commodity markets and even authored a book back in 2016 titled Gold Trading Boot Camp where he accurately predicted the implosion of the US credit market and urged people to buy gold when it was only $550 an ounce.
He's made a lot of great calls right here on this podcast this year and it's great to have him back on with us. Greg, thanks for the time again and welcome. How are you?
Greg Weldon: I'm great, Mike. My pleasure, anytime. You do a great job, so I'm always happy to contribute.
Mike Gleason: Well, it's great to get people like you on as frequently as we have. We're very fortunate, so thank you. Well, Greg as we're talking here on Wednesday afternoon, the stock markets sold off yesterday and we got a rally in metals, this morning is as if by magic in the equity markets are levitating and metals are being sold.
Some unnamed official reportedly said the U.S. and China are close to a trade deal. Where have we heard that before? The sort of rumor of an imminent deal on trade has been floated about 84 times over the past couple of years now and somehow the markets appear to keep buying it every time. We aren't sure why real people would still be responding to this news. Are the algorithms completely in control of things here, Greg, what's going on?
Greg Weldon: Wow. I mean I don't know about the algorithms, but I can tell you this whole situation on trade makes it virtually impossible to handicap what the market is going to do on a short-term basis, that's for sure. And like you said, it's dark out one day and the sun shining right the next day, and you can never tell what the forecast is going to be. So, having said all that, and I will make three points.
Number one, I mean, a trade deal is not an engine of global growth. A trade deal evens the playing field that is uneven and if you were to completely wipe out the U.S. trade deficit on the annual basis with China, it would be less than 2% of U.S. GDP. So, anticipating a trade deal is going to be the cure all here for the economy and it's going to be the next day and that creates $1 trillion of wealth in the stock market, I don't see that. That's number one.
Having said that, you might even make a case that has been a good thing that you've had this level of uncertainty around trade and you've had the focus on trade be so myopic as to be, keystone in its nature in terms of trying to trade the markets. That the good news here is that the kind of the attention on trade has drawn attention from other places that have suddenly turned kind of sour, man.
When you look at the U.S. consumer, I think the setup here and Powell made it very clear in his most recent press conference out there, the recent monetary policy statement, that we've kind of reacted on a preemptive basis on trade it probably will get worse, we might act again but right now it's kind of wait and see. We anticipate something will get done. But even if it doesn't, the U.S. consumer strong enough to carry the load here.
Everyone that seems to be so complacent about how strong and that word is, the word is used, the consumer is, and I beg to differ in the most vehement terms possible. Because, and I could lay it out for you if you want to go into the stock market here, but it really comes down to looking at the growth numbers and looking at some of the dynamics that again, again are even hidden. And this is why I love to dig down so deep into the, into the numbers because you kind of get the real story.
When you look at inflation, all right, now the headline numbers being held down by energy, which went from 76 to 42 last year at this time. You're going to get the reversal of that, but it's going to be short lifts, so maybe two or three months where the energy kicks in on a year over year basis in the inflation numbers. That would lift the headline rate to where the core rate is or maybe higher. You could be pushing 3% all right? How is the Fed supposed to respond to a weakening consumer when you're looking at potentially inflation, two and a half to three?
Within that inflation number, what you have is a rise in the prices of necessities. Stuff like bus fares, urban bus fares, parking. Medical insurance. Motor vehicle repair. Shelter we know, medical care we know, medical care services through the roof. These inflation numbers are really high and in a lot of cases, I mean well north of 3%. Well north. And in that vein what you've done is at the same time with the kind of the rise in the core rate to above 2% you've also seen shrinkage in the nominal levels of growth in both retail sales and in average weekly earnings.
And I watch average weekly earnings as opposed to average hourly earnings for one very simple reason. You can get paid more per hour, but if you work less hours, you're going home at the end of the week with less money. So much more important is the average weekly earnings in the labor markets report coming up this Friday. So within that context I'll point out two things and it's really simple, man.
Average weekly earnings on a real basis have gone from just under 2% a year ago to 0.2 year over year. 0.2% year over year, not two, 0.2. And in the same time retail sales, all retail sales including the pockets of strength, the year over year, real rate against the correlate of inflation is 0.7. It was above four a year ago. That is a real testament to how much the economy and the consumer has eroded that is not being paid attention to seeing or shrugged off potentially, because of the situation with the trade deal and China.
So, it has bailed a consumer who has had their position weakened dramatically because if you're going to have to pay more for stuff like childcare, for stuff like parking, for stuff like bus fares to get the work. You're going to have less money to spend on discretionary items and we see that flow through perfectly in the numbers. And to think that a trade deal is going to spark enough confidence to reverse that without lifting income is shortsighted.
It might happen for a while. You might get a boost of competence that stimulates borrowing, all right and we're watching the consumer credit numbers very closely, because that should be the next thing to roll over. I take it a step further though, the XLY, the consumer discretionary ETF, the S&P consumer discretionary. It is flatlined. It's going nowhere. It is hugely owned. It has not made a new high in this run in the stock market. So it's not confirming. And that's important. Why? Because it peaked first in 2007 and led the way down. It bottomed first in 2009 and led the way through the 2014 tap out.
Then you had 2015 you had all of a sudden you thought, Hillary Clinton was going to win the election and so on and so forth. Trump gets elected from 2016 to 2018, the XLY was once again leading the way. If you go back 10 years, you lay out the XLY consumer credit retail sales, the Fed's balance sheet and the stock market, it was all the same plot. More recently, you've had fiscal QE from Donald Trump. What's next? Where's the next QE? Where's the next tax cut? Where's the next big tree and dollar push that's going to drive consumer spending on discretionary basis when income is not growing?
And what's happened is the XLY has rolled over relative to the staples and more importantly relative to the S&P itself. And if you overlay the XLY, S&P ratio against the S&P 500, it always leads both higher and lower. It always peaks and bottoms first every single time going back 25 years, and it has peaked already in 2018 and is now breaking down. And that is a major yellow caution flag waving wide and high in front of the U.S. stock market.
So yeah, all the attention on trade. Well. Frankly trade gets done is going to be like, everyone's going look around at each other and go, "Now what?" And there really isn't anything now what on the horizon that I see this is going to be positive enough to get you the kind of growth numbers that people have in their heads.
Mike Gleason: Yeah, certainly those are going to be much more important indicators of what the economy's going to look like moving forward. I'm glad you touched on that. You mentioned briefly there, the election from several years ago. I suppose we should touch on politics here since the 2020 election is likely to dominate headlines in the financial press next year. Our take is that president Trump isn't likely to have much trouble beating every one of the current Democratic roster.
It looks to us like the democrats somehow managed to find candidates who are even more unelectable than Hillary Clinton, believe it or not. The one wild card is lots of people talk about the U.S. economy. If the country slides in a recession, Trump could have some trouble. What are your thoughts on the possibility of a serious downturn in the months ahead and do you think we're maybe underestimating the chances that a Democrat can win?
Greg Weldon: Is there an election here next year? I mean, you just want to say landslide. I mean, gosh, I hate talking about politics. I really do. I'm not a Republican or a Democrat. I'm a libertarian. Less government is good. You'd have certain social programs you need. You need defense. You need some social support for the less thans and the people that don't have and through no fault of their own. But this thing has gotten completely blown out of the water.
You want to talk politics? I'm going to talk about budget deficits. I want to talk about the U.S. debt. And people might want to put this back on Trump. It has nothing to do with Donald Trump. The fact we had a $984 billion deficit in the most recent fiscal year ended September. We're already on track to beat that by 20% already. Already this year in the new fiscal year!
The two biggest problems are Social Security and then Medicare. You're talking entitlements. What politician out there wants to talk entitlements? What politician out there has a plan to fix Social Security? What politician out there in their right mind since Paul Ryan? Look at the destruction of his career for suggesting that we have to cut entitlements, we have to end Social Security, we have to grandfather people in somehow and make people responsible for their own retirements.
This has to happen or none of the rest of the stuff even matters, man. And you're looking at a shortening fuse on this time bomb. It really is. You're talking now something in potentially the 15-year range if not for sure within 20 years. I want to talk about that. None of the politicians wanted to talk about that, because it's political suicide. So, it almost doesn't even matter. Does it matter? Of course it matters. It matters huge. It's a binary situation.
Donald Trump gets elected. It may not be good, but it's not a disastrous scenario that you will have if any of these Democrats get elected. And I like the two guys that have come in more recently. I just love this kind of stuff. The one guy, I swear to God, I've seen his commercial five times, I still can't remember his name. But he gets on there and he says, "Trump's a loser. Trump is bankrupt. Trump's never been successful doing anything. I built a $36 trillion company." And it's kind of like, "Well, the difference between Donald Trump and you is everyone knows who Donald Trump is. Nobody knows who you are, guy." Okay? So, you have zero chance of winning and you have so many of these guys.
Who the heck are the democrats going to put up? Elizabeth Warren's a nightmare. These people are, they have no sense of reality. And the real dynamic here is they're willing to buy this election through any means necessary. And I think most people see through that. So to me, thank God that Donald Trump, whether you like them or not, he can be a fricking bully, a buffoon, a blowhard. He acts out like a five-year-old sometimes. His vocabulary sucks. He's not as intelligent he'd like you to think he is, but the guy is American number one.
His passion is there. His work ethic is there, his ideas are there and the programs are there that have helped the country. So, you can't argue against that. And guess what? It's the silent majority out there that elected him and that silent majority is bigger now than it was four years ago. So, to me in the longer term, it really doesn't matter. It's just Democrats hasten the end game because they're going to blow out everything in the budget.
But either way, we're staring down a budgetary situation that's already in crisis mode. 4.6% of GDP last year the deficit was, 4.6. If you're in Europe, you're getting fined by the EU commission right now.
Mike Gleason: Yeah, I think that's well handicapped. I guess it's kind of akin to, it's like, "Well do you want to go towards that cliff at a hundred miles an hour or just 50 miles an hour." It kind of seems like. Maybe it's a good way of summarizing.
Well, you've made some tremendous calls on this podcast over this past year. Back in May, we spoke and you called the gold breakout point to a T and we saw the yellow metal rocket up to about $1,500 and then beyond, it's about a $200 move before it found some resistance late this summer.
Then we spoke to you in late June and with silver severely lagging gold's move at that point you called for silver to outperform and it went from the low 16s to over $19 an ounce before it ran into trouble. So, you called silver's breakout point perfectly as well. So with all that said, I'm going to put you on the spot here again and ask you how you think the metals will perform at the end of the year and into next year.
It's been a rough couple of months for metals investors after those big moves. But, in your studied view is gold and silver ready to break out one way or the other? Are you ready to make another bold call here, Greg?
Greg Weldon: Yeah, actually I am. And the one thing I'll add to that, not to be full of myself, but we got out of those positions very well too. We saw the correction coming. We played out the correction. There was one point I thought the correction was over and we got a long silver and we got smacked. So, two good calls then one little misstep and that's kind of how trading goes. I mean, if you can be right 50% of the time in your actual positions, you can make a ton of money doing this. Anything above that is just gravy.
We've been good on it because I think I'm really seeing the ball clearly here, man. Everything's crystallized for me when you go back to August of a year ago, and that's how long this evolution has taken place. We have not only called this, we've called the Fed, we've called the economy. Everything is in sync here. And that's what makes it so exciting and yet at the same time kind of scary. And one of the things that I like to tell people, and we started a website on this, you remember we did the Gold Investor Bootcamp?
Because, we think there's opportunities here and we want people to understand how futures work, how this works. Do you do coins and bars? We actually featured your company because we think you guys are as good as is out there and better than most anyone that I've seen, do it as well as you guys do, Money Metals Exchange, in terms of facilitating physical metals transactions and buying of gold bars, silver bars, gold and silver coin.
That's one way to go. The mining shares is one way to go. If you didn't do the mining shares do the small cap, the venture cap, or you do the big cap behemoths, blue chips. In terms of futures, in terms of ETF. And then when you get to the futures market, wow. I mean futures is the greatest tool out there. It's also the most misunderstood still to this day.
I'm 36 years in this business, started on a commodities exchange floor where they filmed Trading Places for crying out loud and the World Trade Center. I worked at Lehman Brothers, I worked at Prudential, I've worked at two of the largest and most successful hedge funds in the world and I've been doing this 21 years on my own. I think this opportunity here is as good as it gets.
It is a decade long opportunity within a generational opportunity. And within the context of the recent correction we called it, we got back in on silver a little early. We got out real quick. We're wrong, I'm out, man. I mean, hey, I'm not right all the time. It's just that simple. You can have that kind of mindset, but within the context of what's happened recently, silver has already completed a perfect, a textbook, A-B-C what I call double kills zone correction.
The double kill zone for me is very simple. It's between two of the major Fibonacci’s and two of the major moving averages. I use the same moving averages in everything; bonds, currencies, metal. I want my indicators to be robust to the point where they work all the time, good enough to be used all the time across every market. And when you look at the 100-day and 200-day exponential moving averages on daily charts and the 52-week and two-year exponential moving averages on the weekly charts and you throw in the Fibonacci retracements, you get windows, man, that are so reliable. It's almost uncanny.
Silver mapped out an A-B-C double kill zone correction that got to the 200-day moving average almost to the T the 61% retracement of the first big wave here last year. Gold did not. Gold barely had a correction. Gold didn't even get to the 100-day moving average. Gold didn't reach the first of the Fibonaccis, the 38%. And gold had big open interest. So, the question was, is this such a bullish scenario where we can rally from here gold dragging all this weight or does gold need to crack and get down to at least one of these retracement levels before we cleared the decks?
And that was uncertain because frankly it's almost such an exciting potential scenario that you might not have cracked gold. What we keyed off was AU, AngloGold Ashanti. It had a beautiful pattern, same kind of thing. It was an upside leader, number one during the rally. The downside didn't reach the Fibonacci, didn't reach the moving averages. Something like Ken Ross for example, reached the 61% retracement.
AU didn't even get to the 38%. It set up a perfect double bottom, I believe it's $18.04 and then the last three or four sessions, it has soared. So, to me that was huge. I said the end of last week, Wednesday before we went on holiday, AU is going to be the litmus test for this market, whether it's ready to rock and roll again or whether it gold needs a little more clearance.
What changed in gold is you had liquidation of open interest without having to have a price decline, and that's pretty powerful stuff too. Because people bought that last little leg up and they got out real quick. They got trapped. I think these markets are poised. I think it's time to be aggressive. When I see the SIL outperforming everything, the silver mining ETF. The SIL right now, yesterday's Gold Guru, great chart yesterday, the SIL is breaking out against the price of silver.
And one of my all-time favorites is back. Underperformer the last year and a half to the enth degree that was so disappointing. Not that we were long, but when I see this setup, I want to see certain stocks really be leaders. Pan American Silver is one of those stocks. Pan American Silver has exploded. Pan American Silver has a great chart relative to the price of silver, and then when you bring the dollar into play, Mike? Holy mackerel.
What's changed with the dollar is in this phase of interest rates coming down again all of a sudden, the bond yields are coming down again all of a sudden because guess what? You got 0.7 real retail sales. You got 0.2 average weekly earnings. You have the ADP numbers today set up a potential really weak BLS employment report number. The ISM numbers have been weak. The economy is kind of choking a little bit here. And you see the now the yield curve flattening actually means something.
It is now. It is the yellow caution flag that it hasn't been the difference here, Mike, and it's subtle, but it's significant. Is that the last time you had curve flattening and bond yields dropping like this, it was happening in a more intense way in Europe. So, the rate differentials between the U.S. and Europe, we're actually expanding a U.S. rate premium to record highs that supported the dollar through all of this.
That's not happening now, man. You are seeing those rate differentials come under big pressure. You've moved about 70 basis points on the 30-year U.S. T-bond to (German) bund yield spread. You have broken down. You're through the trendlines. You're through the two-year moving average. The moving average has rolled over. These interest rate differentials are narrowing. It's putting pressure on the dollar.
If the dollar gets below 97.10 then you open up the door for 95.50, which means 88. So, you could have a stair step move down here in the dollar that causes these metals to explode. We're very bullish right in here, we're playing it very aggressively. For our Gold-Guru clients, we just put it out there actually last week and still very much applicable. We call it our triple play micro caps. This is the way to be aggressive.
We want to be diversified in not only just holding other things to metals but also in our metals investments as well. And in this case, I think some money taking a risk capital, treating some of these literally under a dollar a share silver miners, we picked three of them. Two Australian, one Canadian. And you take some money and put these as if it's a call option, i.e. you're willing to risk every dollar you put in. So, you don't put a huge amount of money in. But guess what? I mean, the upside potential of these stocks, Mike, is like 10 to one.
And then you want to blend that with some of the upside leaders. Pan American's a great name. We love First Majestic, which has been an upside performer. AngloGold Ashanti. Sibanye, the South African PGM miner. We recommended them for our clients below five bucks is now trading $8.83. That's another good opportunity.
I think some of these smaller, lesser known, maybe a little more risky, smaller cap mining shares, particularly in silver, provide tremendous opportunity here. Because like I said before, we started the Gold-Guru as a means to help people and to help them navigate and survive. But it's not about survival because these opportunities coming to me are so phenomenal. You don't just survive, you thrive.
Mike Gleason: Yeah. As we wrap up here, Greg, go ahead and give him the website addresses. I know the Gold-Guru site is still pretty new and now there's some fantastic information on there you just talked about. People can start following you there and get some great advice, tell them how they can do that and follow you more closely as we wrap up.
Greg Weldon: Sure, Gold-Guru. Yeah, it is new. It's inexpensive. We just threw it together out of need when I did the Gold Investor Bootcamp, which we gave your listeners an opportunity to check out. The demand was huge and people are asking me, "How at this stock and what do we do today?"
And now I'm getting emails and I'm like, "Well, let's just start a newsletter." I mean, I remember I used to do before WeldonLive, which is our other product available at www.WeldonOnline.com, that encompasses everything. We do the bonds, we do the currencies, we do global macro, we do the Ags. I mean there's great opportunities in the Ags… look at coffee taken off, we caught that for our WeldonLive clients big time.
JO, with the ETF there. It's short this this week already. And I think those are some of the opportunities that is going to stem out of the dollar decline that's coming too. So the broad based opportunities, not just in the metals but in a whole range of commodities, but for the metal-specific people, which I know a lot of your clients, very inexpensive. We charge 60 bucks a month. We produce almost daily.
Since I do all of this by myself, I don't have a staff or deem here, it's me and Katelyn. She's my COO and I do everything else including taking out the garbage at night and thank God I love what I do because I'm here 14, 16, 18 hours a day doing this, trying to help people and the Gold-Guru 60 bucks a month. I mean that is a steal. We are giving this stuff away and if you buy a year, you get two months free. So, that's a pretty good deal, so feel free to visit and sign up now.
Mike Gleason: Yeah, I certainly urge people to do that. You can get a great sense of how well Greg handles these markets and really have has his finger on the pulse and yeah, people definitely need to check that out. It's fantastic information. Well, it's been wonderful to speak to you again, Greg and all year long. We really appreciate having you on as a guest.
Thank you for making yourself available once again. Hope you have a terrific holiday season and look forward to catching up with you again in the New Year. Thanks again for the time and keep up the good work my friend.
Greg Weldon: My pleasure, Mike is going to be an exciting 2020. That's all I can say.
Mike Gleason: Well that will do it for this week. Thanks again to Greg Weldon of Weldon Financial. For more information simply to go to either WeldonOnline.com where you can sign up for a free trial if you haven't already had one of those, and then be sure to check out Gold Investor Bootcamp and now the new site, Gold-Guru. Be sure to check all that out.
About the Author:
Mike Gleason is a Director with Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. Gleason is a hard money advocate and a strong proponent of personal liberty, limited government and the Austrian School of Economics. A graduate of the University of Florida, Gleason has extensive experience in management, sales and logistics as well as precious metals investing. He also puts his longtime broadcasting background to good use, hosting a weekly precious metals podcast since 2011, a program listened to by tens of thousands each week.