The Shiney “Inflation Hedge” Loses Its Short-Term Shine

Gold has long been considered a hedge against inflation but the recent price action is calling that into question given last week’s government reports.

The Friday release of the new personal consumption expenditures — the PCE — showed that consumer prices increased .6% from December to January, much greater than the .2% increase from November to December. The news caused stock markets to sell off — and, guess what — that old inflation hedge, gold, also dropped.

It may be that precious metals investors are anticipating a Fed pivot where at some point in the future interest rates stop going up and start going down. The expectation used to be that this might occur by late 2023 but now “experts” think it may be more like some time in 2024.

Whatever the cause, gold and gold stocks have been tanking for a couple of weeks now. Here’s the daily chart for the SPDR Gold Shares (NYSE: GLDGLD

It’s glaringly obvious that the spectacular up trend from the early November, 2022 low is over. The early February, 2023 peak near $182 looks quite stranded after the sudden gap down days later. Note that the price is now below the 50-day moving average (the blue line) and that it appears to be ready to turn downward. The 200-day moving average, just below the price now, continues to slowly trend downward.

The weekly chart for the SPDR Gold Shares looks like this:

Lower peak prices is the first thing that you notice: the high is mid-2020, then there’s another stab at it that fails in early 2022. The 50-week moving average has been trending sideways to down since the beginning of 2021. Nonetheless, the 200-week moving average continues to upward strength — long-termers are staying with it even as the shorter-term crowd dumps.

Here’s the monthly SPDR Gold Shares chart:

So the very long-term view is that an uptrend remains in place as is evidenced by the 200-month moving average as it continues to move higher. Even with all of this February’s selling, the 50-month moving average continues to climb. These are positives from a price chart analysis perspective.

The other shiny precious metal, silver, has a similar price action look. Here’s the daily price chart for the iShares Silver Trust:

This month’s dumping of these silver iShares is extraordinary with a early price high of $22.50 and then the crowd comes in and gets out of it. The uptrend line from the October, 2022 low is broken, the 50-day moving average turns downward and the price slides to below the 200-day moving average.

Friday’s red selling bar indicates little concern for the possible effects of the personal consumption index. Silver is saying “inflation? what inflation?” — at least, on this short-term time frame.

Here’s the weekly price chart for the iShares Silver Trust:

Look at how decisively the shares last week took out both the 50-week and the 200-week moving average. It seems likely that they’ll test how much support there is at that August/September/October, 2022 $16/$17 area. This is another chart that’s saying “what inflation?”

The monthly iShares Silver Trust looks like this:

It’s much different than the monthly gold chart, isn’t it? This might be related to the different industrial uses for silver and the effects that may have on price action. Whatever the reason, this precious metal is a long way from the 2011 high of $48. The early 2020 low of $11/$12 may be the next test of support when viewed from this perspective.

Not investment advice. For educational purposes only.