August 2024 - Week 1 Edition

July Market Review – As We Enter August’s “Stock Market Hurricane Season”

During the first few days of August, the stock market has suffered the onset of its annual “hurricane season” as August and September are typically the two worst months of the year in stock market history – as well as two of the best months, historically, for gold’s performance.

In the past two years, the stock market has fallen over 10% between mid-July and mid-October, paralleling the traditional hurricane season. This year, the S&P 500 was already down over 9% since mid-July, even as Hurricane Debby makes landfall in Florida. The tech-heavy NASDAQ composite was down 15% since mid-July as the formerly high-flying “Magnificent 7” tech stocks were collapsing, losing trillions of dollars for investors over the last three weeks.

And all of that decline occurred before Monday’s disastrous losses that sent the S&P down at the close by another 3 percent; the NASDAQ down by an additional 3.43 percent and the DOW down by 1,033 points. Meanwhile, gold has remained strong. Yes, it did drop significantly as investors panicked, sparking a precious metals selloff to help cover massive losses in other investments. However, the selloff then flipped and gold rebounded as the lower price made gold even more appealing to those waiting or the dip. By the end of the day, Monday, gold regained much of its losses and closed at $2,404 an ounce.

The fact that gold rose since mid-July while the other precious metals fell reflects gold’s role as a chaos hedge. The trend in the first few days of August is more dramatic – like a hurricane hit every investment except gold! From July 12 to August 5^th, gold is the only stable investment.

As you can see, the other precious metals are all down, as are most other commodities – except gold. In the past 30 days, according to Trading Economics, the CRB Commodity Index, which measures 19 commodities in four general groups, is down 7.56%. The CRB Index is dominated by energy (39%) and agricultural commodities (41%), with the remaining 20% in industrial metals (13%) and precious metals (7%). The London Metals Exchange Index is also down 9% in the last month, reflecting the big declines in silver and the platinum group metals – but not gold.

In U.S. Mint bullion sales, American Silver Eagles are up 35% in sales for the first seven months of 2024, but the combined American Gold Eagle and Gold Buffalo sales are down by 63%.

Obviously, as long as gold is below our previously predicted price of $2,500 an ounce it is a strong buy suggestion for investors. However, with the financial market chaos, global conflict between Russia and Ukraine, Iran and Israel, China and Taiwan, and combined with political chicanery in the U.S. presidential race, I feel like gold will continue to increase. I urge you to call your professional account representative today to add gold to your investment portfolio.

The Federal Reserve “Wimps Out” Once Again

The Federal Reserve is partly to blame for the stock market’s collapse over the first three trading days of August. By leaving the Fed funds rate unchanged at 5.5% on July 31, they have throttled the credit markets while procrastinating longer than most other major central banks.

The Benchmark 10-Year Treasury rate closed last week at 3.8% and the shorter-term 2-year rate closed at 3.88%, Keeping the short-term Fed funds rate in a range of 5.25% to 5.50% for over a year (since July 26, 2023) means the Federal Reserve is out of touch with world interest rates by leaving their major short-term rate unchanged. This tends to keep the U.S. dollar strong, since foreign investors will seek this guaranteed high rate (over 5%), while other currencies offer lower rates.

The Fed is likely keeping its rates high in order to attract more foreign investments to fund America’s sky-high national debt. The Fed announced their decision last Wednesday, and the next day, Thursday, the Bank of England cut its key interest rate from 5.25% to 5.00%, their first such rate cut since 2020, thereby joining several other central banks – including Canada, the European Central Bank (ECB) and China – in cutting their central bank rates this summer, while hinting at more cuts to come. These cuts will cause their currencies to fall due to lower yields.

The Bank of Japan actually raised its rate from 0.10% to 0.25% but also reduced its quantitative easing (inflation) by 50%. This caused a huge (20%) crash in the Tokyo stock market in the first three trading days of August, along with an 8% decline in the Japanese yen, so there appears to be a lot more to the Fed’s procrastination on cutting rates than what the press is reporting.

I’m off to the World’s Fair of Money.  I’ll send you a report next week.

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