Vince Lanci: Gold Silver Give CPI The Heisman… | Arcadia Economics
Summary
Transcript
CPI coming out hot, dashes hopes of a rate cut. And that means everything that benefits from a rate cut should go down. Welcome to the morning markets and medals with Vince Lancy where each day he brings you the precious metals and financial news to get you ready for your day. And now, here’s Vince. Hey, good morning everyone, I’m Vince Lancy and in today’s video morning meeting we will be reviewing yesterdays market reaction to CPI and well discuss the gold silver ratio a little bit.
Throw some two cent in there from a firm that has a stake in bitcoin. Anyway, lets go to the markets first. The dollar is up seven at 105. 2, 610 year. Yields are 455, up a basis point s and P 500 is down 14 handles at 51 42. The VIX is 1651, continually firming the gold market 23. 37 spot, up three and change. Silver is 27. 97 up $0.
08. Copper is down a little bit at 425. Oil is down $0. 59, despite having, after having a good day yesterday at 85 89. Natural gas is 179. Okay, so that’s all far radar. Now bitcoin is 70 spot 471 down 144. Ethereum, 35 55 up eleven and change. Platinum, palladium are both up. Palladium is 1056, up five and change. Platinum is 969 up about $5. Grains are mixed.
Corn is the only thing that’s up. Soy and wheat are down. You can see that. Okay, today’s prices, reading those prices to you, it doesn’t really tell you much, but in the context of yesterday’s activity, probably would be very helpful. So let’s do that. Let’s do that. Here’s the post that I put up yesterday. This one here is accessible to all. And I think it turns out that it was pretty predictive.
Not predictive, I would just say it was a good roadmap for the day. CPI came out hot yesterday, and we had talked about that. Well, you may have seen this after CPI came out. Well, CPI coming out hot dashes hopes of a rate cut. And that means everything that benefits from a rate cut should go down. So stocks would start off dropping. This is the first 15 minutes after the news came out.
This sell off would continue the rest of the day. People took their money out of bonds. Thats the bond yield going up because people are selling bonds. People took their money out of bonds more aggressively than they took them out of stocks, I would say, in my opinion. And thats because its not just about lowering rates would make bonds go up. Its also about not lowering rates. Makes our deficit go up, a debt service thing.
Anyway, bonds getting smacked more than stocks is a comment on our fiscal indebtedness. And its a little bit buoyant for gold now. The dollar was stronger because as people were taking their money out of stocks and taking the money out of bonds, they were parking in dollars, maybe putting it in money markets tomorrow or today. Gold, gold should have sold off because gold would benefit from monetary easing because of the inflation it would create.
If you could see in that long wick there in the candle, you could see that while gold sold off pretty violently, it bounced pretty hard. And it bounced hard because of what I just mentioned. People are looking at the bond market going, this is pretty bad for us in general if we cant ease rates and that means our deficits really big and were worried about it, et cetera, et cetera.
So you still have people buying gold in lieu of buying bonds. Now, gold did work its way lower the rest of the day, but this is the first 15 minutes. Silver, same thing with actually more of a violent rejection of a sell off. And I would chalk that up to people shopping for value in silver now that gold has had its rally. Copper took a hit, didn’t bounce as much oil got sold, but ended up rallying for the rest of the day.
That’s what happened yesterday in response to CPI. You can look for more of that, excuse me, you can look for more of that going forward because now the market has gone from, if you think about it, in December people were talking about six rate cuts. Now they’re talking about one rate cut and maybe no rate cuts. Everyone’s aware of President Biden and his comment that he still thinks a rate cut’s going to come.
Not going to get into that, except to say that he has no place saying that, whether it’s his opinion or not, because that’s disagreeing in ranks. You don’t have to be a fan of Trump to know that. If Trump had said that, the press would have destroyed him. Moving on. All right, we’re going to talk about gold, silver and bitcoin. Nothing definitive, but I want to read something, an excerpt of something that I have by a firm called BCA.
It’s a british firm, and they do some very good analysis. They tend towards fractal work. And while I disagree with their conclusion, that’s not the purpose of this conversation. The purpose of this conversation is to lay out their observations, which I think are quite good. Okay, so let me just read some of the bullets that I’ve summarized. Gold and bitcoin and silver are conceptually joined at the hip because some of their value comes from the non confiscatability by inflation, by bank failure and to an extent state expropriation.
In English, what that means is just thinking about gold because a lot of people are gold people here. Inflation is not going to make the value of gold go down. A bank failure is not going to make the value of gold go down because you cant confiscate something that has no counterparty to an extent state expropriation, meaning they have to come and get your gold or you have to voluntarily give it up.
Now the reason that applies to bitcoin is for all the same reasons. You can argue about the state expropriation thing on either asset, but that’s why it says to an extent silver. Although they don’t mention silver in this light. Well silver has exactly those qualities. If it’s even harder for government to confiscate silver, you can’t do it. It’s too used. So I would argue it’s the first place I disagree with the analysis, which is very good.
Silver is even less confiscatable than gold anyway. They then go on to talk about gold and bitcoin have been similar of late and they also believe both are tactically set for retracement. Both those statements I agree with. Then they mentioned in passing to make another point, that silver exists on earth in a ratio of eight to one, yet its price is 85 to one. And weve all heard this before but I think its relevant in their brief analysis they do on it.
So lets just go on. So basically the report is called gold and bitcoin joint at the hip. And the key phrase about the gold silver thing is for centuries the gold price did just track its scarcity versus silver multiplied by the silver price, meaning eight to one. But when the world moved to a fiat monetary system in 1931 after the collapse of the gold standard, and then again in 1971 after the collapse of the Bretton woods pseudo gold standard, the gold price surged to well above its scarcity versus silver.
They go into why they believe that is and im going to share that with you. But back to gold and bitcoin. I think this is instructive because if you have a preference of one over the other its important if you can to make it apples to apples because theyre not entirely maybe ones a Macintosh and other ones are red delicious, I dont know, but theyre not entirely really the same apple.
Here we go. Gold and bitcoin have been highly correlated recently they note, and you can see that on the left hand side is bitcoin scale. On the right hand side is gold scale. This is actually, I like this a lot. If you back out bitcoins leverage, theyve performed almost exactly the same meaning. On the right hand side you have the gold scale and on the left hand side you have the gold scale.
Why? Because we’re going to say that for every one gold you own, if you owned five bitcoin, you’d have the same risk profile. That’s a pretty good visual. Bitcoin is gold on leverage. If you were a bitcoin person, you could say why would you buy gold? Why not just buy one fifth in bitcoin? And if youre a gold person youd say well, why buy bitcoin when you can just buy five times as much gold? If you want upside possibility and those dividing lines have to be drawn because you say I want gold, I want something physical versus I want something thats not physical, that is more flexible, assuming all the qualities of both are that is more affordable.
Basically its the future, its progressive versus conservative, or young versus old, however you want to look at it anyway. So then they go into talking about other precious metals and theyre trying to back out qualities of gold to make it more apples to apples with bitcoin. And im not going to get into what they conclude, but im just going to say that they say other precious metals that are gold’s neighbors in groups ten and eleven of the periodic table, silver, platinum and palladium, can substitute for many of gold’s physical properties.
In fact, some of them are better than gold and some things, that’s silver, right? So we can quantify the part of gold’s value that comes from its physical properties as being gold’s relative scarcity versus, say, silver as captured by the so called mining ratio multiplied by the price of silver. Now theres the chart. So the price ratio is 85 to one. This is from 2000 to 2024. But the mining ratio is eight to one anyway.
Obviously that doesnt go back to Bretton woods, but thats when it changed. And ill read the quote they have on that. I think I said this already, but I’ll say it again. For centuries, the gold price tracked the scarcity versus silver multiplied by the silver price. But when the world moved to a fiat monetary system in 1931, after the collapse of the gold standard, and then again in 1971 after the collapse of the Bretton woods pseudo gold standard, the gold price surged to well above its scarcity versus silver.
Now their conclusion just to throw it out at you is that that this is wrong and golds price is overvalued relative silver and then gold price is overvalued relative to bitcoin. And that’s their argument. I wouldn’t make the argument about the gold bitcoin relationship. I would make the argument that gold is overvalued to silver. The question you have to ask yourself as a gold bug, as a silver bug or as a bitcoin bug is why did the rise of fiat versus a gold standard do that to gold silver? Well you have to have an answer for that.
Nobody knows the answer, but I believe that it has a lot to do with that. Central banks have been buying gold for 100 years. Theyre just buying more of it now. They dont store silver in central banks. It’s not as small the store of value. But that’s another whole conversation because silver has something else in it that I’ve talked to Chris Marcus at Arcade about and we’ll talk about another time.
Anyway, nevertheless, gold and bitcoin have already rallied sharply and reach collapsed short term complexities that make them vulnerable to tactical consolidation or reversal. They look at things from a fractal point of view and the complexity. Complexity causes rallies, complexity, collapse causes sell offs. That’s how they look at it. They think the markets are toppy in general and I can’t argue with them and they go on to talk about other markets that are also toppy, oil, copper, et cetera, et cetera.
But that’s the gist of it. The gist of it is gold and bitcoin are joined at the hip right now and bitcoin is a leveraged play on gold’s qualities of late. And silver is trading way too cheaply compared to gold, or gold is trading way too cheaply in their opinion. More expensive I should say, relative to silver. Anyway, I think its an excellent report and you dont have to agree with everything.
Theres a lot of the people here are gold and silver bugs and I happen to own gold, silver and bitcoin. So im always going to listen to things like that. Anyway, I think its an excellent read. The News bank of America’s green wrote in the FT that markets must stop comparing the UK and the US. He’s talking about monetary policy and I think this is a nod to something Tom Luongo has been on about, oh boy, almost a year now and I’m a convert about, I’d say six, seven months ago.
But the reality is this, the UK is not the US. The UK and US relationship is tearing. And as it tears, their inflationary problems will persist compared to our inflationary problems. And green is trying to make everyone know, hey, we’re on our own now, okay? And that goes back to brexit as well. Second point. Federal Reserve policymakers generally favored slowing the pace at which they’re shrinking the central bank’s assets portfolio by roughly half.
They’re continuing with QT, but they’re doing it in half. But they’re doing it in the housing half. So they’re going to stop buying back treasuries, but they’re going, I’m sorry, stop selling treasuries, but they’re going to start selling mortgages. I would expect from this policy, you’re going to see mortgage rates go up, all other things being equal, which they never are. Stubborn inflation pressures persisted in March, derailing the case for the Federal Reserve to begin reducing interest rates in June, which is what we just talked about.
This thing is kind of interesting here. The masters is basically split between Dubai, the saudi backed Liv Golf league, and the west. So just like everything else, the world is splitting in half geopolitically. All the news items. To give you another perspective on a news item, all the news items are about various movement intentions in regions. But one thing I’ve seen in common coming out of all these is the US is giving money and pulling out giving money.
And it’s like a severance pay. Oh, we’re going to help Japan build its own missiles. Here’s some money, right? We’re going to help Ukraine defend itself. Here’s some money. We’re going to help Israel, all right? By selling them or giving them missiles. Okay. So as the US becomes more concerned with its own problems, with its own risks, I should say it’s pulling back out of its global policeman activity.
And by the way, that’s what’s happening in England, too. We don’t pull out our missiles, but we’re pulling our money out. So we’re pulling our money out. We’re pulling our influence out of the world region at a time. And in places where we’re thanking them, we’re giving them a severance pay. In places where they didn’t really give us anything, we’re not giving them anything. So if you want to look at it geopolitically, it’s like, Japan, here’s some money we’re not abandoning.
You built some missiles, Ukraine, here’s some money. We don’t really want to go in there and fight on our own. We like Europe and England we’re not giving you any money because you’ve been on our coattails. And that’s not me talking. That’s just how the market is perceiving it. Anyway, there’s other stories there as well. Today’s data is PPI. It’s a significant data number. I’m not going to predict which way it’s going to go, but I’m going to say that PPI should be strong, unrelated to CPI, because PPI will show that the manufacturing is kicking up.
There’s the premium report. I’m Vince. Have a great day. Thanks for watching this morning’s markets and metals update with Vince Lancy, brought to you each day by Miles Franklin precious metals, where this week’s special is 1oz 2023. Dated silver cougarans for only $3. 10 cents over spot. Cougar ants come from the south african mint, one of the six major sovereign mints, and are IRA eligible. Find out more by calling milesFranklin at 833-326-4653 or email us@arcadialesfranklin.
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