While hopes for a dovish pivot may keep silver from crashing in the short term, history shows that actual pivots are bearish.
The crowd continues to celebrate weak data as a less hawkish Fed cools Treasury yields and lets risk assets breathe. However, that narrative did not work on Nov. 9, as another bond market sell-off sapped sentiment.
Yet, while the prospect of lower rates may seem bullish for silver, an economic shock should lead to a profound drawdown over the medium term.
For example, continued unemployment claims rose for their seventh consecutive week on Nov. 9. For context, the metric measures the number of Americans who file for unemployment insurance more than once.
Please see below:
To explain, the sharp jump on the right side of the chart highlights how long-term interest rates have made their presence felt in the real economy. And with oil noticing the destruction, it’s no surprise crude has declined materially from its September and October highs.
In addition, Challenger, Gray, and Christmas Inc. released its job cuts report on Nov. 2. And while the data was decent MoM, an excerpt read:
“So far this year, employers have announced plans to cut 641,350 jobs, a 164% increase from the 243,338 cuts announced in the first ten months of 2022. This is the highest January-October total since 2020, when 2,162,928 cuts were announced. It is the second-highest total since 2009, when companies announced 1,192,187 job cuts.”
Furthermore, the retail outlook was highly ominous. The report added:
“Retailers have announced 72,182 cuts through October the sector, a 258% increase from the 20,191 through the same period last year. It is the highest total since 179,520 cuts were announced through October in 2020.”
And as for the holidays:
On top of that, Apollo Chief Economist Torsten Sløk wrote on Nov. 7:
“Hiring for the holiday season is generally done in October, and adding up new jobs created in the BLS-defined holiday season retail sectors in the latest employment report shows that retailers expect a weaker holiday season. This soft outlook is consistent with growing inventories at many retailers.”
Please see below:
To explain, the relatively short green bar on the right side of the chart highlights how retail hiring in 2023 has been weaker than prior years, especially in 2020 and 2021. As a result, while gold should suffer too when economic-induced volatility strikes, silver and mining stocks will likely bear the brunt of investors’ wrath.
More Employment Concerns
Amid mounting evidence, A.P. Moller-Maersk, the largest shipping company in the world, blamed overcapacity, rising costs, and weaker prices for its disastrous third quarter. CEO Vincent Clerc said:
“The new normal we are now headed into is one of more subdued macroeconomic outlook, and thus soft volume demands for the coming years, prices back in line with historical levels, inflationary pressures on our cost base, especially from energy cost, and also increased geopolitical uncertainty.”
Also, say goodbye to ~10,000 jobs:
Finally, The Conference Board released its Employment Trends Index (ETI) on Nov. 6. The index “decreased in October to 114.16, from a downwardly revised 114.63 in September,” and a continuation of the trend should only enhance the USD Index’s attractiveness.
Please see below:
To explain, the blue line above tracks The Conference Board’s ETI, while the red line above tracks total U.S. nonfarm employment. If you analyze the relationship, you can see that when the blue line drops, the red line isn’t far behind. As such, with more pain poised to materialize in the months ahead, we remain recession bulls in 2024.
Overall, the S&P 500 is on thin ice as pivot hopes fuel dreams of a soft landing. However, history does not support this optimism, and the unfolding economic damage should result in more scars than rate cuts can cure. In other words, when the pivot finally arrives, a major sell-off should already be underway.
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Alex Demolitor
Precious Metals Strategist