Gold’s role as the primary inflation hedge has been replaced by other assets, as investors bet on raw commodities to outperform during a reflationary environment, said Phil Streible, chief market strategist of Blue Line Futures. “Typically, [gold and inflation expectation] do correlate together because gold has historically been a great asset class for inflation,” Streible said. “However, when all asset classes, and in specifically commodities, basically went to unprecedented lower levels, things like lumber, crude oil are going negative, everything from your grain markets, copper, everything got smashed one year ago today…the price of those commodities have really taken off on the upside.”
we're seeing continuous pressure on the markets as gold and the S and P 500 are seeing downward action. Phil streetball chief market strategist at blue line futures is back with us to dissect market action. We're speaking with Phil as of 11:30 AM. Eastern time on Friday. Phil welcome back. It's uh, hasn't been a terribly volatile week per se, but we are seeing pressure as I stated.
How are you reading the markets? I know we spoke on the phone just now you told me you are short term short on gold. Is that correct? Yeah, we've been playing the downward channel and golden AXA, especially with the acceleration outwards in interest rates. Again, today's specifically on tenure yield, 30 year bond yields.
Those have broken back out to the upside. Every time we see that happen, what happens is you get a spike in NASDAQ volatility. You get these wild boobs in the U S equity markets. They have a spillover effect on the gold and some of the precious metals. So it seems like. Much of the movement that we're seeing in models is more emotion driven and interest rate driven at the moment.
And when we get close to a $1,700 level, of course, you're going to have that psychological, a number coming to play. I have to ask Phil, it seems that the bond yields are sort of a threat to both the equities markets and the precious metals, right markets right now. So what's driving the yields are higher.
So, well, yields naturally are going to rally with rising inflation. Now certain sectors of the market don't respond well and others do respond well when you do have a rising yield, say financials, for instance, fantastic area to be in, in a rising yield environment. Gold on the other hand does not perform well because of the fact that many people hold it as a safe Haven asset, they'll allocate into something that does give them a yield and some safety, which is the bond market.
Okay. I'd like to draw your attention to this chart. Now it shows the GLD ETF versus the tip ETF. I've showed this chart in their show a couple of times before I really liked this chart because I have all the variables I've observed the GLD ETF, which tracks the gold bullying has the closest correlation with the tip tippy TF.
The correlation coefficient is 96%. If you look at it from a five-year. Time horizon. So that on this chart, you'll see that the yellow line represents the GLD ETF and the blue line represents a tip ETF, which tracks inflation expectations. The treasury inflation protected security goes up when inflation expectations in the marketplace goes up and down.
Um, vice versa. What you've seen the last couple of months is that the GLD ETF has trended downwards while the, the blue line that tip ETF has maintained its sort of, um, height. So there is a bit of a divergence for the first time in five years. Why do you think this has happened? It's an excellent observation by you too, David.
Um, you know, I want to point out that typically they do correlate together because gold has historically been a great asset class for inflation. That's where you get the people that present their ideas that are like over 10, 20 years and things like that. So they're looking at that longer term chart.
However, when all asset classes and specifically commodities basically went to unprecedented, lower levels, things like lumber, crude oil going negative, um, everything from, you know, your grain markets, copper, everything just got smashed about one year ago. Today. Those were at this new baseline level. That as you see, demand increase, and as things pick up those price of those specific commodities had really taken off to the upside.
So people found a lot better ways to play inflation just by going specifically into the pure commodities, like lumber oil, gasoline, things like that, and avoiding nine yielding commodity, specifically gold. Okay. So are you saying that gold is. I guess replaced by the market as, as a, as an inflation hedge.
And there are better instruments out there. Am I, am I interpreting your comments correctly? Yes, exactly. And the fact that many people, you know, received stimulus checks and things like that over the course of the last year, they took that money and they deployed it in a different asset classes, things like Bitcoin and Ethereum, you know, and chasing these other assets that are out there, whether it be stock stocking to seize, we talked about, you know, some of these, um, these smaller stocks just going to unprecedented levels again.
So it was really. Money came into the market. It was chasing an inflation, but it was chasing different ideas out there where normally the concentration would be held in like gold and silver. Okay. You brought up some other commodities like lumber and crude oil. I know you track crude oil. Tell us about oil it's it's you know, energy is sort of the foundation of our entire commodity, our economy, rather.
So if oil goes up and in fact, let's, let's assume it goes out of control. That could really have a huge impact on our overall inflationary environment. Couldn't it. The soul oil was really the reopening play because of the fact that it's cracked in a gasoline then in bunker fuel and things like that, heating oil.
So it's used for a lot of different transportation type vehicles. And what happens is, is as. Vaccinations occur. Number of cases go down. People start to get mobile. And I think they really did right around Thanksgiving to Christmas. They realized that they can go out a bit and they are starting to travel more.
So the demand for oil has been continuing to increase. The interesting thing about it though, is that oil prices. We've really given control over to OPEC on where oil prices are going to go. So the play was already in place from November till now, where we're breaking out to new, um, recent highs. But the reality is, is that once we get closer to like June, July, and prices, get in the seventies, you're going to see Saudi Arabia start pumping oil out and oil prices will back off.
So I don't think. You know, you're going to see that 9,000, $110 oil. I just don't see it happening because OPEC has too much supply that they could provide with demand only inching higher. Are you saying there's no longer a supply chain issue Phil, last year, oil lumber, whatever the case may be. Raw commodities saw serious supply crunches due to logistical shutdowns all around the world from the pandemic.
Is that still an issue? No, not really. In the U S we had that. We had logistical issue when we just had that recent storm that went through taxes and through the Midwest. And that's why oil prices we've had some spikes on there. We had some significant drawdowns on the inventory data in Europe. You might have some because of each company or country.
You know, operating independently with different lockdown restrictions. So there may be some logistical issues, but really in the us. Um, we're starting to really open up once we open up that Canada border, the backs of COVID border, things like that. And we have more freedom on travel. Uh, you're going to see some of that demand pick up, but logistically we won't have that anymore.
Any problems. Okay. All right. Now let's talk about your positioning for the rest of the year. Now for second half of 2021, how do you see gold playing out? Okay. So the way I believe that the models that we have work are going to show that in the next quarter, you're going to see higher CPI data record GDP data.
And then after that, the cops year over year are going to compress. Right? So how many people were shopping at Amazon last March versus this March? How many people were ordering. You know, pizza delivery, last bars, when you couldn't go anywhere, that was your only option to this March when restaurants would starting to open.
So the comps are going to compress. As we get more opening, the interest rates will start to compress with that economic data. At that point, we'll see the bottom and gold. So we're really. Optimistic I go into the second half. So we'd like to be long, silver gold. And then we're also playing copper as a trading range.
It's a infrastructure spending, uh, you know, bill commodity and automotive sales have just done nothing but increasing an automotive demand is continuing to increase in that goes into your rhodium, your palladium and your platinum. Can the rate of change for gold and the second half be as aggressive as last year's rate of change.
The problem with gold. Okay. In the problem that I have with gold is that you had the mother of all. Like, yes, it was this super bowl. It was it. And we got to one 2100 and some change. Okay. So unless we have some new catalyst that could drive it at that rate. Whatever it might be. It's possible. It's something happens.
You have war, you have a banning of currencies. You have perhaps maybe banning on the green energy guys go after mining and there's no mining. So then supply all of a sudden gets shut off, demand increases for gold, and you get the 2,500, $3,000. So I am optimistic. There will be a recovery. I don't think we will make that new contract high, not this go around.
I think there'll be a second. You're going to know it's going to be another multi-year catalyst to get, get us up to those record record, you know, the 2,500 3000 plus we'll follow up another time and talk specifically about potential drivers. Let's finish up the interview by talking about gold miners.
I'm assuming since you're bullish on gold for the second half, you're anticipating gold miners to reach an inflection point soon as well. Yeah. And, and, you know, I talked to with, um, you know, one of my great customers and he pointed out, you know, a few things and it, and it was really maximum pessimism.
That's the thing that really got me on the miners. Even the conversations I have with people, they are so pessimistic on the miners. The reality is, is that interest rates will stop going up. So interest rates are a big input cost for minors, the energy costs, second biggest cost for minors. Those will come down once.
You have like Saudi Arabia and OPEC boosted demand, gold prices should naturally rise with the compression on economic data. So I think that second half of the year, I think is a great place for the minors. And I don't recommend throwing in the towel because too many people have written it lower. I think you'll get that, that recovery trade in the second half.
So, you know, keep your chin up if you're locking the miners. Well, just, just one more point. Cause you brought up oil. Suppose oil continues to rally on the economic recovery. And you said earlier in the interview that some other wall commodities like oil has become a better inflation hedge than gold.
What would happen to gold when people just move their money into oil and other commodities and away from gold? No, because the demand for those other commodities will start to stall out. So if you look at lumber, okay. So say lumber prices, copper prices, things go up to this extreme number. Okay. What'll end up happening.
Well, we'll harvest more lumber from, you know, deforesting. We'll also see a lack of demand because what happens if you're $250,000 house now costs $500,000 because. That's how much it costs to build it. The builders will stop building the demand will we'll shift out of those raw materials and people will naturally gravitate towards different inflation ideas and goal being at a bottom price.
You know, I don't know where the bottom is going to be. It could be 1650, something like that, 1600 somewhere. I think we'll approach a bottom. And that would be your opportunity to get along for that, that second half. All right, Phil. Thank you so much for coming on today and giving us your updates. We'll speak again soon on more market action.
Thank you. Yeah, you have a great weekend. Thank you for having me. You too. Have a good weekend and thank you for watching kiszko news. Stay tuned for more.