- Stocks rally in a continuation of the worst economic data of our lifetime
- Silver leads the way on the upside in precious metals
- Crude oil continues to post gains- New short-term highs in natural gas and then a correction
- Grains were quiet as they await the May 12 WASDE report
- Paul Tudor Jones lights a bullish fuse under Bitcoin and digital currencies
The story of this week:
The Silver-Gold Ratio and Bitcoin- Bearish Signs For Currency Values
After the wild gyrations in markets over the past weeks, some sense of stability returned at the beginning of May. The tidal wave of liquidity from central banks and government stimulus programs have bought time, but economic data is a reminder of the enormous price tag of the global pandemic.
On Monday, May 4, the US Treasury told markets it would borrow $3 trillion to fund stimulus. The previous record was $530 billion from June through September 2008. On Thursday, data that over there were over 3.169 million new applications for unemployment benefits, pushing the total to over 33 million since March. Friday’s employment data was the worst in history. The US Labor Department said 20.5 million people lost jobs in April, with the unemployment rate soaring to 14.7%. The government began tracking data in 1939, and the last time unemployment reached the current level was during the Great Depression. The rate reached its all-time peak in 1933 at 24.9%. At the same time, average hourly wages rose by 7.9% compared to last year at this time. The lowest-earning workers suffered the most, with approximately 35% losing jobs. The people who need jobs the most lost them on the back of the global pandemic.
The requirements for more stimulus are going to rise over the coming weeks and months. While job losses have soared, as the economy reopens, companies and businesses are likely to do more with less, meaning that unemployment will remain high and in double-digit territory for a prolonged period. The US Treasury will need to go back to the well and borrow a lot more than $3 trillion over the coming months.
Stimulus increases the money supply, which has been historically bullish for the prices of gold and silver. In the wake of the 2008 financial crisis, the precious metals fell to lows of $681 and $8.40 per ounce, respectively. The stimulus in 2008 and the years that followed lit a bullish fuse under both metals as gold reached $1920.70 in 2011, and silver soared to a high of $49.82 per ounce during the same year. If history repeats, and it often does, we could see both metals head a lot higher over the coming weeks, months, and years.
The silver-gold ratio can be a barometer of the path of least resistance of the two metals at times. Since silver attracts more speculative market participants, it tends to outperform gold on the upside and underperform on the downside during significant price moves. During the risk-off period in 2008, the ratio rose to a high of around 77:4:1 before falling to a low of 38:1 in 2011.
The daily chart of the price of nearby gold divided by nearby silver futures on COMEX shows the ratio dropped from over 124:1, a record high in March to below 108.5:1 at the end of last week. If the ratio continues to decline, it could be a sign of the next leg to the upside in the gold and silver markets.
Meanwhile, in another sign of the decline in value of all currencies, legendary trader Paul Tudor Jones said that he expects inflation and is purchasing Bitcoin. Bitcoin, gold, and silver are financial assets that could rise dramatically as the value of fiat currencies drop under the weight of stimulus that has an explosive impact on the money supply.
The daily chart of Bitcoin futures displays the explosive move in the cryptocurrency that took it from $4445 on March 13 to over $10,000 per token on May 8.
Gold, silver, and bitcoin are assets that could have lots of upside as the stimulus is going to continue for the foreseeable future.
Highlights in commodities:
- June gold roses 0.76% on the week, settling at $1713.90 per ounce
- July silver soars 5.62% as the precious metal settled at $15.778 per ounce on May 8
- July platinum gained 1.99% on the week. July platinum was at a $924.60 per ounce discount to June gold futures, which narrowed since last week
- June palladium fell 3.53% and settled at $1,821.10 per ounce. Rhodium fell $200 per ounce to a midpoint of $5,000 over the past week
- July copper was 4.07% higher to the $2.4060 level since May 1. July copper settles over $2.40 for the first time since March
- June iron ore futures moved 6.07% higher over the past week
- The BDI fell 19.06% since May 1 to the 514 level
- July Rotterdam coal rose 1.86% since last week
- July lumber was 11.11% higher since May 1 and was at the $365.00 per 1,000 board feet level
- June NYMEX crude oil continued to rally and moved 25.08% higher. The June contract closed the week at $24.74 per barrel
- July Brent crude oil rose 16.94% since last week
- The premium for Brent over WTI in July closed Friday at the $4.83 level as the spread moved $0.60 higher since last week
- June gasoline rose 24.26% while June heating oil futures posted a 12.96% gain over the past week
- The gasoline crack spread in June was 24.58% higher since last week. June heating oil cracks moved 6.00% lower since May 1 as gasoline outperformed and heating oil underperformed crude oil
- Natural gas declined by 3.54% on June futures closing the week at $1.823 per MMBtu after making a new high at $2.162 during the week. The EIA reported an injection of 109 bcf into storage on Thursday for the week ending on May 1
- June ethanol rose 10.95% on the week
- July soybeans moved 0.12% higher since last week
- July corn was 0.24% higher on the week
- CBOT July wheat was 1.06% higher since last week. July KCBT wheat trading at a 42.00 cents discount under July CBOT wheat as the discount moved away from the historical norm by 8.50 cents per bushel since last week
- July sugar fell 6.20% since May 1 and closed at 10.29 cents per pound
- July coffee posted a 5.23% gain since last week
- July cocoa edged 0.08% lower since May 1
- July cotton rose 0.77% since last week as the fiber futures were at the 56.27 cents per pound level
- July FCOJ futures rose 5.61% since the previous report to $1.1945 per pound
- June live cattle moved 8.48% higher since last week
- August feeder cattle rose 7.29% since May 1
- June lean hog futures were 1.59% lower over the past week after recent explosive gains
- The June dollar index futures contract rose 0.68% on the week to 99.769
- June Long-Bond futures were trading at 179-21 down 1-17 for the week
- The Dow Jones Industrial Average closes at 24,331 on Friday, May 8 up 607 points from May 1. The S&P 500 rose by 3.50% since last week. The VIX was trading at around 27.98 on Friday down 9.13 on the week the stock market moved higher despite economic data
- Bitcoin was trading at $9,945.02 on Friday up $1,167.78 or 13.30% since May 1
- Ethereum was trading at $213.28 on Friday, up 0.84% since the last report
Price Changes for the week:
DBC closes at $11.25 per share, up 49 cents since April 17
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $754.70 million, and trades an average daily volume of 1,719,664 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume and net assets fell over the past week as the price of the ETF moved higher.
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.