Santa Has Gifts For Everyone, Just More For Gold And Silver

Dec 28, 2021

Santa Has Gifts For Everyone, Just More For Gold And Silver

Covid raging, bowl games canceled but Santa Claus rally can’t be derailed

This week we explore:

• A short-term look at the last three trading days of the year

• While Santa loves stocks, he loves silver and gold even more

• Gold and silver’s impressive December run and why the fun could be just beginning for precious metals

• Preparing our mindset for the great rotation and a Return to Real in 2022.

Question: What happens when you combine higher producer prices with higher wages and higher taxes and then mix it together with more austere central banks, failed fiscal stimulus, and a major slowdown in federal spending?

Answer: We get a big “reality check” (with the gratuity already added in!) as higher yields and deeper negative rates punish growth and fuel value.

It’s all on the menu for the coming years.

But rather than focus on the long-term reality, we instead turn our focus to the last 3 trading days in 2021 and what may be left of today's central bank-fueled euphoric dreamland.

It seems the last days of 2021 will witness the market's counting wins and asking questions later.

It’s why we wanted to offer a shorter-term perspective for those caught up in and focused on the Santa Claus rally.

In recent blogs published ahead of the Federal Reserve’s December meeting we have highlighted the high performance that gold and silver prices have enjoyed in the eleven weeks from December 15th to February 20th.

Over the past six years, gold prices have risen an average of 7.5% and silver prices have risen 9.5% during this short timeframe. This year seems to be following suit.

Since the Fed’s last meeting on December 15th, gold prices have risen from $1758 to $1806, up nearly 3% in just two weeks. Silver prices have risen even higher, from $21.97 to $23.02, up 5% in the same period.

It seems Santa Claus has gifts for everyone this year.

What many may find surprising, he's given more to his favorite children of gold and silver than he has to the stock market. Since December 15th, the smoking hot S&P 500 is up 1.62%, the Dow Jones is up 1.31%, and the high-flying NASDAQ is up 1.39%.

It seems nothing can slow down Santa Claus this year and why we highlight how gold and silver prices have performed in the last three trading days over the last five years. The charts below highlight the significant moves often seen at the close of the year.

Notice that gold has risen in value in the last three days of trading each and every year by an average of 0.848%. Silver has done even better, rising an average of 0.9% but with one down year in 2016.

We are keeping a close eye on how metals close the year, especially as we anticipate the great rotation will begin early in January.

Santa Claus is real, but so too is the taxman. January is when investors who have been holding onto big winners to avoid paying capital gains will unload their high flyers and rotate into the more oversold areas of the market.

Stocks this past year have risen a whopping 21%, and Vanguard's commodity index rose over 25%, and the iShares US Real Estate ETF has risen a mind-boggling 34%.

In the year of central bank liquidity and fiscal stimmy’s where virtually everything went higher, there were two notable absentees, gold and silver. For the year, gold prices have dropped roughly 5%. Silver fared even worse, down roughly 12%.

It’s one of the many reasons we are particularly bullish on the “royal” precious metals over the next 10 weeks.

As tax harvesting season ends, and the great rotation occurs, we expect to see gold and silver get very large bids. We expect this will be fueled by a tightening Federal Reserve, the natural rebalancing of portfolios, and market forces driven by the new Basel 3 banking laws. This will come into effect on January 1st and will limit the amount of naked shorting and paper derivatives permitted by the bullion banks.

Do be on the lookout for our January Full Faith & Credit, which we will release next week. It will explain why we expect to see a dramatic rotation from growth to value throughout 2022 as the real-world monetary Grinch comes to town.

We believe the time is now to get prepared for a monumental shift in investor mindset and positioning which has already begun and will continue to gather steam in the coming months.

Until then, let's all enjoy the Santa Claus rally.

Best,

Adam Baratta

Editor-in-Chief

Brentwood Research