Coming up we’ll hear from Greg Weldon of Weldon Financial and WeldonLive. Greg’s research calls for the markets to roll over, and he’s expecting some very rough waters ahead based on key metrics he’s focused on – consumer spending and debt. He also weighs in on the tricky spot the Fed is in and where this is all pointing for both stocks and for gold.
Transcript of podcast:
Mike Gleason: Welcome Greg Weldon, CEO and President of Weldon Financial. Greg has over three decades of market research and trading experience, specializing in metals and commodity markets and even authored a book in 2006 titled Gold Trading Bootcamp, where he accurately predicted the implosion of the U.S. credit market and urged people to buy gold when it was only $550 an ounce.
He is a highly sought-after presenter at financial conferences throughout the country, and is a regular guest on financial shows throughout the world, and it’s good to have him back here on the Money Metals Podcast.
Greg, thanks for joining us today. And it’s nice to talk to you again. How are you?
Greg Weldon: I’m great, thanks. My pleasure, Michael.
Mike Gleason: Well, when we had you on back in mid-August you were optimistic about gold at the time. We had a pretty good move higher, shortly thereafter that ended up with gold hitting a one year high. But it stalled out around $1,350 in early September and we’re currently back below $1,300 as we’re talking here on Wednesday afternoon. Gold hit resistance at about the same level in the summer of last year, so give us your update as to your current outlook. What drivers, if any, do you see that can push gold through that $1,350 resistance level in the months ahead, Greg?
Greg Weldon: Yeah, well, exactly as you said. You had the move that we were anticipating when we last spoke and it kind of had already started from the 1205-ish level. All of this fitting into the kind of bigger picture, technical structure that still leads to a bullish resolution. But as you accurately mentioned, you got up to what have been close to, not quite even towards last summer’s highs around $1,375, $1,377. In this case, around $1,360 and ran out of steam.
The dollar kind of changed some of the picture and the thought process linked to the Fed changed some of the picture. So, you embarked on a downside correction. $1,260 was the low, you have a nice little correction from that level. That was the level that equated to 200-day exponential moving average. It’s a level that was just below the 38% Fibonacci retracement of the move up from $1,205. Actually, the move up from $1,123 back at the end of 2016. So, you had real, critical support there. So, to me, everything’s kind of mapped out the way you might expect it to, structurally, in this market.
From here, one of two things happen, I think. Well, one of three things, anyway. You could be cut if you have a bit of low rally backed up to $1,300. You back below it a little bit to dollars; still looks kind of strong. It’s an interest rate differential dynamic as a more hawkish view for the Fed is priced into the Fed funds; that gets transferred into the two-year and five-year treasury notes. The two-year treasury notes at a record high-yield relative to the German two-year schatzi. So, that lifting the dollar … it’s kind of gravitational pull to the upside. And that is some of the downside risk here; that the rally we just saw is kind of you b-wave and maybe you have a c-wave down towards $1,240. That’s kind of an ultimate low. Whether or not it plays out that way, longer term we still like it.
Mike Gleason: Precious metals have had a pretty respectable year all in all. Gold is up about 11% year to date. Silver is up about half as much. There isn’t exactly a lot of excitement. It seems like it’s always two steps forward, one step back. Sentiment in the physical bullion markets, where we operate, is muted. There are multiple factors to consider as to why metals markets are stuck in a bit of a rut. It seems to us that one of the big ones is the equities market stock prices just keep marching relentlessly higher. Either investors have become totally desensitized to risk or maybe there just isn’t as much risk as well think there is. In any event, barring some sort of spike in inflation expectations, which pushes metals and stocks both higher, we don’t see gold and silver breaking out unless investors start getting nervous about stock market valuations and thinking about safe havens. So, what are your thoughts about equity markets and how they relate to precious metals, Greg? And where do you see stock prices headed in the near term?
Greg Weldon: Yeah, I mean it’s a perfect question because the reality is, and we in our daily research we focused on this, in fact yesterday. We haven’t spoken … It sounds like we arranged this question. Focusing on the fact that gold, relative to S&P, is at a low. You really are kind of lows that we’ve seen before, but at a level where if you get much lower, you’re breaking down to multi-year lows and this whole thing gets called into question from a technical perspective. But my problem with looking at it from a technical perspective, is that I think the stock market is living in borrowed times. Basically, the Fed has done exactly what they wanted to do. They have flushed people out of safe havens and into risk assets. That’s the whole idea of QE. It worked. You reflated the stock market. That has facilitated a huge, unprecedented rise in consumer credit.
