My Latest Thoughts on Stocks, Metals, and Currencies

Last week was another wild week in the markets.  In my last write-up, I reconfirmed my forecast that silver and gold were on their way to new multi-year highs, and the markets complied beautifully. 

Silver exploded higher by another 11.5%, closing the week around $31.49.  This is silver’s highest close in over a decade, and it should still have further to run.  Although it will continue higher, we need to be prepared for some periodic, fierce corrections.

We will run into good selling around $32.50, and then again around $35.40.  Eventually, we might see prices above $40.00 per ounce, but that will take some time. If the authorities continue to run irresponsible fiscal and monetary policies, then silver will eventually have the power to reach its all-time high of $49.83.   That high was posted in April 2011, and many thought that we would never reach those levels again.   (Below you will find the short-term and long-term charts of silver.) 

Compared to silver, gold had a relatively tame week.  It closed the week at $2415, gaining a bit more than 3%.  This was gold’s all-time highest weekly close, and it looks set to continue its climb.  My minimum shorter-term target is around $2530, although it might run all the way to $2790 before starting its next corrective cycle.  It is just too early for me to fine-tune my shorter-term targets, but the overall direction is quite clear.  To put things in perspective, gold’s all-time in 2011 was $1921, and that occurred a full five months after silver had already topped out, just shy of $50.00.  (Below you will find the short-term and long-term charts of gold.)

On April 9^th, I noted that copper had rallied about 20% since October 2023.  Since then, copper has added to these gains, rallying another 20% and closing at its all-time high.  Copper is one of my favorite plays, and it looks set to continue its rally for a number of reasons.  In fact, it might even accelerate further from here.  

The driving forces behind this rally are multi-pronged.  On the demand front, copper’s high electrical conductivity is critical for infrastructure projects.  It is also essential in the transition towards green energy.   Copper plays a critical role in a wide array of products, including such things high-voltage transmission lines, electrical wiring, plumbing, micro-grids,  electrical systems, transportation systems, data centers, and telecommunication centers. Copper’s resistance to corrosion, its durability, and its high electrical conductivity make it indispensable to many industries.  The usages are really too vast to delineate here, but I expect the demand for this remarkable metal to continue to grow.

Whether it be for electric vehicles, infrastructure, Smart Cities, alternative energy collection, or AI the demand for copper is expanding.  S&P Global forecasts that the demand for copper will double over the next decade, and production is unlikely to be able to keep up with the increased demand.  Enormous increases in demand is expected to be global, with heavy requirements in China, Europe, India, and the U.S.  Adding to the demand imbalance is the fact that China, the largest importer of copper, has reduced its output by cutting back the smelting of this metal. The increased demand and reduced availability of copper are further fueling the sharp price increases.

In stocks, the S&P 500, Nasdaq, Dow Jones, and a number of overseas indices continued their seemingly inexorable climb, posting all-time highs.  In late 2023, stocks started to surge higher when it became increasingly clear that Powell was unlikely to hike rates any further.  In December 2023, Powell suggested that the Fed would likely be cutting rates three times in 2024, and the stock market rallies accelerated.  The chart of the Nasdaq below illustrates this well. 

The S&P 500 and the Nasdaq have shrugged off a slew of bad data in 2024, continuing to rally despite worsening inflation numbers and reduced prospects for lower rates this year. Concerns about the Fed holding rates “higher for longer” were crushed by renewed optimism about AI and the widespread benefits it would bring everyone.  

So where do we stand today?  As I have written previously, the current level of optimism regarding stocks is extreme.  Many things have to go very right in order to justify asset levels anywhere close to current levels.  The famous “Buffett Indicator” is currently around 182% (total stock market capitalization as measured by the Wilshire 5000 index relative to the US GDP).  This is very much overvalued considering the long-term average of the indicator is just shy of 100%.  As an indicator for market-timing or trading, however, the Buffett Indicator has minimal value, but as a big picture benchmark it is very helpful.   

Higher interest rates in the current environment have had some positive impact on the fight against inflation, but not nearly enough.  Financial conditions remain extremely loose (in fact they are looser this week than last), and speculators are more than happy to keep increasing their equity exposure at the current time.  Frankly, investors are choosing to ignore the elevated levels of inflation, the increased risk associated with a bitter presidential election, the dangerously high and still increasing US fiscal deficits, the equally dangerously high and still increasing wealth disparity, the war in the Middle East, and pretty much every other risk factor that a more conservative investor might find worrisome.  My expectation is that stocks will continue on their “melt-up” until suddenly the world view of investors shifts.  

At that point, I am expecting an almighty reversal in stocks, and a chaotic decline in the dollar against most major currencies.  There are many potential triggers for these reversals, and I will elaborate on them more extensively next week.  In the meanwhile, it is safe to say that a world in which investors can gleefully keep increasing their risk because they believe the market will continue to go their way regardless of economic, political, and social developments is an irrational fantasy land.  Yes, it can continue for a long time, but eventually, the market will correct, and a semblance of reality will return.  It is highly unlikely that earnings will justify the current equity valuations, and some unexpected bad news could shock this market into a violent, downward trend.  Accordingly, I remain cautiously constructive on stocks, with very tight stop losses on all long exposures.

In the currencies, I remain skeptical about the yen’s weakness at the current levels.  At the 160.00 level of dollar/jpy  I was very happy to increase my long-term option exposures, playing for an eventual recovery of the yen.  At the current level of 156.00, I am not increasing my bets.  I want to see the Bank of Japan take some action in the form of higher interest rates.  That would send a very strong message to the market that they are seriously concerned about the negative impact the weak yen is having on their domestic consumption.  The authorities in Japan are unanimously concerned about the current levels of dollar/jpy, but in typical Japanese fashion, they are moving very cautiously.  The fact is that dollar/jpy has rallied 84 yen since its all-time low was established in February 2012.  Even a modest 50% correction would send the dollar crashing back to 118.00.  Could the dollar have one final rally above 160.00?  Yes, but I am confident that it would be a move that would be powerfully rejected. 

There are some other currency plays that I am more focused on right now.  I remain bullish on the Australian dollar versus the Canadian dollar.  The pair moves in slow motion, but the trend is well-established, and it continues to grind higher. I also like the euro versus the Canadian dollar.  This is another slow-motion trade, but its trend is solid.  I have written about this pair previously, and I remain very constructive on it.

In the meanwhile, I want to wish you all the best of luck.

Andy Krieger