1. Monday’s bond market closure was a welcome reprieve from one of the most challenging periods for fixed income in years. And by some measures, what’s been happening in the bond market has produced the worst results for investors on record. The bond-market sell-off that’s sending yields soaring is starting to eclipse some of the most extreme market meltdowns of past eras. Reported losses on Treasury bonds with maturities of 10 years or more had notched 46% since March 2020, while the 30-year bond had plunged 53%. Those losses are nearly in line with stock-market losses seen during the worst crashes of recent history, when equities slumped 49% after the dot-com bubble burst and 57% in the aftermath of 2008. Compared with earlier bond-market meltdowns, long-term Treasurys are seeing one of the most extreme undoing’s in history. The losses are over twice as big as those seen in 1981 when 10-year yields neared 16%. That crash came as the former Federal Reserve chair Paul Volcker grappled with historic inflation and pushed the federal funds rate to just under 20%. Long-duration yields have climbed to their highest since 2007 as a result, with the 30-year note passing the 5% barrier for the first time in decades. Investors expect a similar path for the 10-year, which is hovering at just more than 4.7%. Well-known investors, including Bill Ackman, Ray Dalio, and Bill Gross see the 10-year hitting 5% in the near term.
2. If the traditional 60/40 portfolio is meant to be a portfolio diversifier, it’s not working. So as bonds sold off last week, stocks followed, leaving nowhere to hide for 60/40 investors, who allocate 60% of their investment to stocks and 40% to bonds to hedge against market downturns. If things had played out as many expected over the past year, the U.S. would be in a recession by now. Stocks would be down, and more investors would likely be in bonds. Instead, a stronger than expected economy is reacting better than expected to tight monetary policy. If there were a clear consensus that a recession is coming, bonds would be catching more bids. But as data continues to come in stronger than expected, what happens next for the economy has become convoluted. A resilient labor market could continue to support consumer spending while inflation tracks lower, setting the stage for an end to Fed rate hikes and a ‘soft landing’ scenario. Or the resilient economy could stay so strong it reaccelerates inflation and forces the Fed into further rate hikes, likely sending the economy into a recession. If there were a consensus favorite on those two outcomes, the recent market volatility and increased correlation between bonds and stocks likely wouldn’t be present. But that hasn’t played out.
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4. The current washout in metals and miners’ stocks is purely technical (banks covering shorts). It should end quickly, and then we start the next significant advance, which could take gold above $2100. The U.S. may be approaching a crisis if long-term Treasury yields continue to spike. Last September, the yield on the 30-year UK Gilt jumped over 5.0%, and the Bank of England had to buy bonds to soothe markets. The yield on the 10-year US Treasury just hit 4.81%. Something could shatter if it surges above 5.00%. Financial systems repeatedly implode in October; the next few weeks could be interesting. The U.S. Debt Clock just turned $33 trillion. If you stacked that in $1 bills, it would reach the moon and back four times. In case you were wondering, the moon is 238,900 miles away. And if you used the estimated $200 trillion of unfunded liabilities, it could make 24 roundtrips. The final washout in metals and miners is potentially underway. The big picture outlook remains bullish, and we see a likely strong rally once prices bottom. The next few trading days are crucial.
5. Housing market pessimists have been sounding the alarm for years about a pending crash in the U.S. residential real estate market. Even before the Federal Reserve began hiking interest rates to fight inflation last year, pushing mortgage rates to a 23-year high this month, years of surging home prices left some experts warning that the housing market was a massive bubble ready to pop. However, despite a widely bearish outlook in the industry, most real estate veterans have avoided arguing that home prices will drop like they did during the 2008 crash that kicked off the Global Financial Crisis (GFC). And so far, that’s been a wise decision. It took until June 2022 for national home prices to peak, even as mortgage rates soared, and purchase applications plummeted amid the Fed’s first interest rate hikes. And while prices fell more than 5% from that peak by January of this year, they returned to a record high in July. Still, a Bank of America team led by U.S. economist Jeseo Park warned this week that there’s more “turbulence” coming for the housing market due to high mortgage rates. They explained that they’re getting an eerie feeling of “déjà vu,” but it’s not 2008 that is coming to mind, it’s the 1980s. Back then, just like today, home prices had boomed for years before Fed officials were forced to hike interest rates aggressively to fight inflation. The rise in the consumer price index peaked at around 14% in 1980 before then–Fed Chair Paul Volcker’s hawkish policies sent mortgage rates to 18% in a year’s time, cooling inflation, but sparking a recession. This caused a serious downturn in the housing market in which home sales and building levels cratered. Eventually, as inflation fades leading the Fed to cut interest rates, housing affordability will improve. At that stage, we should see a more stable and healthy housing market. Until then, hang tight, it may be a bumpy ride.
6. There’s one undeniable fact about the U.S. housing market. It’s just not affordable for the vast majority of potential homebuyers. It hasn’t been cheap to buy a house in decades, if ever, but the Pandemic Housing Boom started a huge run-up in prices as remote and hybrid work expanded the map for millions of Americans, many of them millennials entering peak homebuying age. The Zoom towns boomed, and prices followed. But 2022 shocked many of the 40-and-under crowd as mortgage rates went from the 3% range to more than 7% in the blink of an eye, yet decades of underbuilding kept a floor under prices. Now a housing industry executive has put a figure on just how bad it’s gotten. With mortgage rates hitting a multi-decade high at 7.49%, Andy Walden, vice president for ICE Mortgage Technology, has done some calculations. He calculates that U.S. incomes would have to increase a whopping 55% for the housing market to be considered affordable. Other housing industry experts share Walden’s view. In other words, don’t hold your breath for mortgage rates or home prices to go down anytime soon.
7. Large-scale corporate bankruptcies are at their highest level since 2020 as elevated interest rates continue to batter businesses. This year giants such as Bed Bath and Beyond, trucking firm Yellow and wedding retailer David’s Bridal have filed for Chapter 11 bankruptcy thanks to a perfect storm of rampant inflation, high rates and supply-chain disruptions. Some 459 corporate firms have filed so far this year, already surpassing 373 in 2022 and 408 in 2021. What’s more, so-called ‘mega bankruptcies’ – those by companies with more than $1 billion in assets – hit 16 in the first half of the year. By comparison, figures from consulting firm Cornerstone Research show there have been an average of 11 ‘mega bankruptcies’ in the first six months of every year between 2005 and 2022. Analysts at Cornerstone added the biggest corporate bankruptcy this year was SVB (Silicon Valley Bank) Financial Group, the parent company of Silicon Valley Bank, which had $175.4 billion in customer deposits at the time of its filing. Economists warn the rise in large-scale collapses can have devastating consequences for the economy. The rise in bankruptcies coupled with a weakening stock market and surge in credit card delinquencies has sparked fears the U.S. is heading for a recession. Amy Quackenboss, an executive director at the American Bankruptcy Institute cited: “Companies have been surviving the past few years by taking advantage of the ultralow interest rates. But many of these corporations are seeing those loans come due now, and they’re struggling to refinance because the interest rates now are significantly higher.”
8. In the week ending October 7, the advance figure for seasonally adjusted initial claims was 209,000, unchanged from the previous week’s revised level. The previous week’s level was revised up by 2,000 from 207,000 to 209,000. The 4-week moving average was 206,250, a decrease of 3,000 from the previous week’s revised average. The previous week’s average was revised up by 500 from 208,750 to 209,250. The previous week’s level was revised up 8,000 from 1,664,000 to 1,672,000.
9. Oil prices leapt 5% on Friday, with Brent on track for its highest weekly gain since April, as investors worried the conflict in the Middle East could widen after Israel said its infantry and tanks had carried out raids inside the Gaza Strip. The Energy Information Administration reported an inventory build of 10.2 million barrels for the week to October 6. The inventory change compared with a draw of 2.2 million barrels for the previous week, which, however, did not affect prices as expected because the EIA also estimated a substantial increase in gasoline inventories, sparking concern about the health of demand. Brent crude oil is at $90.82 per barrel, and the price of WTI crude oil is at $87.19 per barrel.
10. EUR/USD sees continued selling pressure into the week’s end, tapping the 1.0500 major level. European Industrial Production figures came in mixed, and the ECB’s Lagarde reaffirmed a tight policy stance. A miss for U.S. consumer sentiment is capping upside gains for the Dollar, limiting Euro losses. The EUR/USD pinged 1.0500 in Friday’s downside push, with European production figures spreading to the middle, and the European Central Bank’s (ECB) President Christine Lagarde reaffirmed the ECB’s tight monetary policy stance until inflation achieves the central bank’s 2% target.
11. USD/JPY snaps the recent winning streak ahead of data. A slew of solid U.S. data could underpin the Dollar. S&P Global anticipates that Japan could see upward interest rates trajectory, beginning in 2024. USD/JPY trades lower around 149.70 during the European session on Friday, snapping a three-day winning streak that began on Tuesday. Despite reaching weekly highs, the USD/JPY pair has experienced a pullback, attributed to the retreat in the U.S. Dollar (USD).
Hamas’s surprise attack on Israel and that nation’s response has led oil old-timers and analysts to draw parallels to the Yom Kippur War, 50 years ago. That conflict’s ripple effect led to production cuts by oil-producing nations in the Middle East, an oil embargo, a surge in prices, and fuel shortages. No one’s calling for such dramatic action in oil this time around. And one veteran strategist thinks that even if the war spilled over into the broader region, with Iran being drawn into the conflict, oil prices would still be capped at $100 a barrel. That strategist is Ed Morse, global head of commodity strategy at Citi. “The good news for the market is that with the cuts that have been taken, we have a good 4.5 to 5 million barrels a day of capacity in the world,” he said. “Should prices get significantly higher, and by that, I mean above $100, I think we can expect that the spare capacity that has been held back particularly by Saudi Arabia, the UAE, and Kuwait will find a place in the market.”
Inflation moderated in September as energy price increases eased from the previous month and used car prices continued to decline, according to the latest data from the Bureau of Labor Statistics released Thursday morning. The Consumer Price Index (CPI) showed inflation rose 0.4% over last month and 3.7% over the prior year on a headline basis in September, a deceleration from August’s 0.6% month-over-month increase and in line with August’s 3.7% annual rise. Both measures were slightly higher than economist forecasts for a 0.3% month-over-month increase and a 3.6% annual increase, according to data. On a “core” basis, which strips out the more volatile costs of food and gas, prices in September climbed 4.1% over last year — a slowdown from the 4.3% annual increase seen in August. Monthly core prices rose 0.3%, on par with August. Both measures met economist expectations. Inflation has remained significantly above the Federal Reserve’s 2% target.
Mortgage defaults have risen at their fastest pace since 2009 as lenders warn over plans to restrict the supply of deals. There has been a spike in the number of homeowners missing mortgage payments, data from the Bank of England shows, as they battle high interest rates. Problems in the property market have been compounded by banks cutting mortgage lending to households for the second quarter in a row, the Bank said, with further reductions expected before the end of the year. The proportion of banks reporting an increase in missed payments between July and September outweighed the number reporting a fall in defaults by a margin of 43.3pc, up from 30.9pc. This is the highest level since the global financial crisis. Lenders warned that defaults will increase further over the coming three months. A growing number of banks are reporting losses because of missed mortgage payments. While existing homeowners struggled, buyer demand for new mortgages also fell sharply between June and September as the summer increase in mortgage rates hit buyers’ borrowing power. The net balance of lenders reporting a fall in demand for secured loans to households plunged to -54.9pc, a major swing from the positive reading of 52.7 in the previous quarter.
Volatility should be expected to remain high as investors will be closely watching for hints on upcoming monetary policy direction. Many investors have redoubled their efforts to ensure that their portfolios are sufficiently diversified in the hopes that they will be able to withstand corrections in multiple market sectors. Many of these investors have included physical precious metals as part of their diversification plans, given their long history as a hedge against both inflation and during times of economic turmoil. Remember, the key to profitability through the ownership of physical precious metals is to own the physical product and hold it for the long term. Always remember that you should never overextend your ability to maintain ownership of your precious metals over the long run.
Trading Department – Precious Metals International Ltd.
Friday to Friday Close (New York Closing Prices)
| Oct. 6, 2023 | Oct. 13, 2023 | Net Change | ||
|
Gold |
$1,831.89 |
$1,928.45 |
96.56 |
5.27% |
|
Silver |
$21.56 |
$22.72 |
1.16 |
5.38% |
|
Platinum |
$881.71 |
$884.38 |
2.67 |
0.30% |
|
Palladium |
$1,165.46 |
$1,148.72 |
-16.74 |
-1.44% |
|
Dow |
33401.42 |
33672.20 |
270.78 |
0.81% |
Previous Years Comparisons
| Oct. 14, 2022 | Oct. 13, 2023 | Net Change | ||
|
Gold |
$1,644.79 |
$1,928.45 |
283.66 |
17.25% |
|
Silver |
$18.24 |
$22.72 |
4.48 |
24.56% |
|
Platinum |
$902.98 |
$884.38 |
-18.60 |
-2.06% |
| Palladium |
$2,007.51 |
$1,148.72 |
-858.79 |
-42.78% |
|
Dow |
29643.67 |
33672.20 |
4028.53 |
13.59% |
Here are your Short-Term Support and Resistance Levels for the upcoming week.
| Gold | Silver | |
| Support | 1901/1881/1850 | 22.25/21.77/21.56 |
| Resistance | 1941/1975/1989 | 23.01/23.82/24.05 |
| Platinum | Palladium | |
| Support | 858/840/826 | 1139/1120/1102 |
| Resistance | 890/904/941 | 1176/1202/1250 |