To explain, the red line above follows the S&P 500, while the green line above follows US private building permits (released June 16). If you analyze the arrows, you can see that the first almost always turns around before the second . For context, the S&P 500 initially peaked before building permits in 2018 and concurrently in 2015. However, in 2018, when the S&P 500 recovered and continued its ascent – unlike building permits – the index benchmark US stocks suffered a decline of about 20%. So, if you analyze the right side of the chart, you can see that building permits peaked in January and have declined significantly. And if history is any indication, the S&P 500 will eventually follow suit.
In conclusion, the PM imploded on June 17th, as the apprehension of the decline and the sharp revaluation of the USD index brought down the guillotine on metals. And with the latest FED dot plot, similar to bullet holes in the PM, the ambulant casualties are still far from being cured. With soaring inflation and the Fed likely to become even more hawkish in the months to come, the cycle has shifted significantly from the golden loop environment that metals once enjoyed. And with the two-day price action likely the opening act of a much bigger game, PMs could wait months for another round of applause.
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Przemyslaw Radomski, CFA
Sunshine Profits: Efficient Investing Through Diligence and Care
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