Interview: Recession Later in 2023 is Gold's Catalyst

[00:00:00] Speaker 1: Hey, everyone. Welcome in to another daily editorial here on the KE Report. We are chatting with Jordan Royburn, founder and editor of the Daily Gold. Now, Jordan, big picture. Look, we can talk about the day-to-day or week-to-week moves in the precious metals or in the markets or in the dollar, all we want. But right now, it does seem like, and what we're hearing from more and more people is that stuff could be range-bound. Markets, broadly, could be range-bound for the next few months. Who knows? Maybe through the rest of this year, that's going hand-in-hand with a lot of people saying, well, maybe we are going to get a soft landing. Maybe this upcoming recession or the recession that it seems like everyone's been waiting for might not be as bad as some people think. It's impossible to forecast what is going to happen in the future. But in your eyes, when it comes to putting a more sustainable trend in place for the metals or even for the markets, what do you think matters, especially when it ties in with that whole recession narrative that everybody still continues to talk about and read about? [00:01:12] Jordan Royburn: Okay. Well, quite simply, Corey, what matters is, is the economy going to have a soft landing or a very, very mild recession where it just, you have two quarters where it's negative and it's, yes, it's a recession, but it's, it's very mild and it's more of a soft landing. So you have that scenario. And then you have the scenario where a real recession hits and the Fed, you know, and when that happens, inflation metrics are going to plunge. And then the, the narrative is going to change from, you know, the Fed has to tighten more, they're going to be holding or positive, whatever. It changes from that to, okay, they're going to have to cut rates here and we're going to have to look at more fiscal stimulus coming in. So to me, that's really the big question. If we're looking at the rest of the year and as far as the timing, if you look at the history of all these yield curve inversions and you look at the average and median time of when they invert and when the recession actually hits, you're looking at, at the absolute earliest like April or May, but in most cases, the median and average time of those inversions gives you a forecast of July, August and that period. So just the fact that we haven't, you know, and I'm a little guilty of this in recent months, but the fact that the recession hasn't hit yet, or even if it doesn't hit for another three or four months, that doesn't mean that it's not going to hit later on, that there's no landing and we've safely escaped that threat. So look at this data, look at the LEIs, the LEIs have come down so much and that indicates there's going to be a recession and all the soft landings, the LEIs just came down a hair. So there's, the data is telling you there's going to be a recession. And in addition to that, yes, the Fed has tightened policy, but how long have, how long has the economy in the financial sector had to deal with 4% rates or even 3.5% rates? I mean, I think raising rates from zero to two or two and a half or even, you know, three, it doesn't quite do that much. It really needs time to hit. So I think, again, you look at this timing, you give it another three, four or five months, that's more time where these high rates of, you know, four plus percent are really going to start to make an impact. If you look at, you know, in recent months, lending standards have really started to tighten up. So you look at all these things, there's a severe risk of a recession hitting in the second half of the year, probably sometime in the summer. And again, that's just the big question. If you think it's going to be really, really mild and more close to a soft landing, then it makes sense where you want to be bullish on conventional stocks and also commodities. However, if you think a real recession is going to hit, it's going to be a hard landing and the Fed is going to have to completely reverse policy. That's the scenario where you want to be in precious metals, then it's going to lead to gold breaking out and, you know, making a huge run much higher in 2024 and 2025 and that sort of thing. So I think that's really the key question. And so the fact that the recession hasn't hit yet, that's kind of muddying the thought process right now where people can say, oh, well, you know, the economy, it looks okay. It might be strengthening a little bit more here. You know, unemployment is still good. There's growth and, you know, the energy stocks look good and, you know, China might be coming on. I think I want to own copper. I think it's given the macro, I think, you know, I think there's still a lot of risk of owning those things just because of the timing, because the recession hasn't even come yet. So looking at, I mean, of course I am a gold bug, so, you know, I'm guilty of this. I tend to be, you know, bullish on gold at the expense of other things. But if you look at these factors and you just look at kind of the macro landscape and, you know, intermarket analysis and, you know, when you get laid into a cycle and go into a recession, what performs best? It's precious metals. So for me, I think there's going to be a real recession hitting later in the year and that, you know, precious metals are going to be the immediate beneficiary. I think for the other commodities, it's, you don't want to own them this year. I wouldn't even think about them until next year, honestly. Well, Jordan, the truth is that really [00:05:51] Speaker 3: nobody knows what's going to happen as this year plays out. There are economists that are all over the map on this. Some people are saying that we already had the worst of it last year when the market's corrected, when we had the two negative quarters of GDP. But there's other economists saying, hey, we could have a double dip recession where that was the first dip. We have this little lull here where things look better. The jobs data looks better. The retail sales looks better. The, you know, some of the other metrics that have come in from all of the jobs reports look like the labor markets are better, but then it could dip down and do that double dip. And that would be the worst part of the recession would be the second part. There's also people saying that, yeah, like you said, there'd be no landing and that we're just going to keep on trucking higher. We're in a new bull market and equities and the economy is fine. So in light of all that uncertainty, we don't really know how it's going to play out. How are you dealing with the short to medium term? Are you just waiting for some more economic data to come in where you can kind of look at the ratio charts, the gold versus the S&P? Or are you just looking at technical levels to do some short term trading? How are you dealing with the short to medium term since we're waiting to see how this is going to play out later in [00:06:51] Jordan Royburn: the year? Well, I think the short to medium term is tough for precious metals because in the very short term here, the narrative is the one that you're talking about. It's a no landing narrative. It's the Fed has to be higher for longer. So, you know, bond yields have been moving higher. The market is pricing in a much tighter Fed over the coming months. And so that has hit precious metals. And so I do think that, I do think over the short to medium term, precious metals could struggle. In the very, very short term, I will say precious metals are really oversold. The stocks are really oversold. So I do see a rebound. But I do see risk that gold could fall into the 1700s, maybe even the low 1700s at worst. I mean, I could be wrong about that. But I think the, for me, the best strategy is, if I'm right, and gold is going to lose that important support at 1800, when it loses that support, that's the time I want to get, you know, much closer to putting cash to work. I'm looking at, I'm reevaluating all my favorite stocks and really looking at which of these companies have the the best combination of value and the best highest margin assets. And so that's what I'm really looking for. And, you know, we'll see how some of these, some of these companies trade over the next couple months. And I think that, you know, if gold does lose 1800, maybe even the highest quality, stocks with the, with these high margin deposits, even those can sell off some. But I think if you own those, then you're going to be able to, you know, ride out the remainder of this correction and precious metals. And at the same time, I do think, you know, things that are more closer to being optionality plays or, you know, huge development projects that require billion dollars and capex and hundreds of millions and that sort of thing. I'm really avoiding those. I would avoid those until it looks like, you know, the macro is turning in gold's favor and, you know, gold's due for a sustained move higher. So that's my thought process over the next, you know, two, three months or so. [00:09:08] Speaker 1: Jordan, can you pull up a GDX chart for us? Because it's been a roller coaster ride to start this year. January GDX just kept moving higher. And in February, it's rolled over and gone almost straight down. It's been down 12 of the last 14 trading days. GDX is down almost 14 percent just this month. And as you said, look, on short term charts, it has gotten oversold and it got oversold in a hurry because of this pretty quick drop here. Now GDX is sitting right on this 200 day moving average. It's sliced through a lot of the other moving averages that I follow. It's hugging the lower Bollinger band. Where is the next stopping point for GDX? How do you take into account this [00:09:55] Jordan Royburn: roller coaster ride so far this year? Well, to me, it matches up with the macro analysis, at least my view, that we're going to see a tighter Fed than we thought, at least, you know, pre-February. And because of that, it doesn't, you know, the market, I think, is maybe pricing in one rate cut at the very end of the year. So that's just too far away for gold and gold stocks in the market to really care. In the very short term, here's one stat. I looked at GDXJ coming into the week, you had zero percent of the stocks trading above the 20 day, only eight percent trading above the 50 day. So when you're in a downtrend and you see those figures, you do get some kind of bounce. So I do think the gold stocks are really ripe for a short term [00:10:54] Speaker 1: bounce here. I mean, looking at the other market action though, Jordan, sorry to interrupt you, but when we do see a sector get that washed out, does it kind of throw a bit of cold water on that [00:11:04] Jordan Royburn: bull market narrative? Yeah. I mean, yeah, we're not in a bull market yet. I mean, anybody who's saying that is just incorrect. I mean, granted, there was probably when the market was moving up, it looked like we could be moving into a bull market, but we're really not yet. And, you know, looking at, if you're looking at, just look at the slope of the 200 day moving average, it's, I mean, if you're looking at silver or the miners, the 200 day moving average is sloping down. So that's not, that's not a bull market yet. And at the same time, I mean, looking at gold, you know, we're not going to be in a new real bull market until gold breaks above 2000 and 2100. That doesn't mean you can't make money on a few of the swings, but yes, we're not in a bull market yet. I mean, I do think we'll be going into one probably in the summer or a little later, but you know, that aside, we're not in a bull market yet. So it's wrong for anyone to call this a bull market. It's not bull market action. In fact, I just looked at, I was curious because when this correction started, you know, you had the big gap down and that's what we've seen over the last two and a half years. You've seen the miners have rallied and then, you know, they put in a peak and then within a couple of days, they had this nasty gap down and they kept declining. And I was just curious. I looked at 2018 in that, you know, move into 2019. And then that correction, that was pretty mild. And during that mild correction, there was no gap down. So, you know, that was more bull market action then, but anyway, you know, circling back to the key levels with GBXJ, you know, I would say, looking at, you know, maybe 32, 31, I mean, there is some support there, but I'm not that I'm not that concerned about levels. I'm more concerned with the macro and, you know, looking over the coming months and, you know, potentially anticipating that, you know, the economy could be moving closer to a recession. And so in that scenario where the macro looks like it's turning more favorable for precious metals, then it's, it's not going to bother me, you know, whether GDXJ falls to, you know, 28 or 31 or 30, that, that to me, isn't really that significant. It's more of the, the macro that's behind that. I do think bigger picture though, that for, you know, GDXJ and the miners, I do think at the very worst, you can see some kind of double bottom here, or, you know, maybe in the middle, you see some kind of higher low. I do think that's what's setting up over the next, call it three or four months is that they're going to make some kind of a higher low here. And, you know, maybe it looks like a double bottom from a bird's eye view, but that's, that's something I'm anticipating as we get into the spring and summer. [00:13:52] Speaker 1: Okay. Hey, a higher low would be great for, let's say GDX, because it's been over two years of lower lows. So there's still a lot of room down to that 21, 16 level that would be a higher low. Boy, boy, if it breaks below that, then I'm sure not many investors that listen to this show would be very happy, but Hey, that's a good level. Just to big picture, look for higher low. That's what we are looking for in GDX. It's been a nice run, but boy, oh boy, this month has been pretty tough as well. Jordan, thank you as always for your time. Interesting to hear your outlook for the charts, but then also a bit more of the focus being on the macro outlook. Thanks for your time, Jordan. We'll chat next week.