Weekly Market Update by PLP Advisors
It was a boring week in nearly every market last week.
Stocks were up slightly but only very so slightly. The Dow Jones Industrial Average rose .18% and the Standard and Poor’s 500 increased but the gain was negligible.
On a nominal basis, the Dow Jones Industrial Average reached new all-time closing highs, but trading volume declined as seen on Chart One.
A healthy stock rally has trading volume increasing while prices rise. That is not the case, at least at the present time, with this stock market. As stock prices reached new nominal highs last week, trading volume declined.
While we have been investing in stocks in some of our portfolios, we are protecting those stock positions with a 10% trailing sell stop loss. A sell stop is a pre-determined exit point at which a sell signal is triggered. A 10% trailing sell stop is 10% below the “high water mark” of a holding.
While a sell stop doesn’t guarantee that losses will be limited to 10%, we believe it is one of the best methodologies for limiting investment losses and locking in investment gains.
Gold and silver were also largely unchanged last week.
Gold was up a nominal amount and silver declined a small amount. Both gold’s gains and silver’s losses were also nominal.
Chart Two is a weekly price chart of gold. Notice over the very long term that gold has been in an uptrend, although the uptrend has been volatile with gold prices rising to more than $1900 per ounce before retreating. This type of price action isn’t unusual over the long term.
As far as the long term outlook for gold is concerned, we are very bullish.
As loose money policies and negative interest rates abound worldwide, we believe the purchasing power of fiat currencies will continue to fall. We believe that will be good news for gold.
We believe history bears this out.
An item that cost $35 in 1971 would today cost about $208. That’s how much purchasing power the US Dollar has lost. By comparison, gold sold for $35 per ounce in 1971 and today sells for more than $1300 per ounce.
Consumer prices increased more than 6 fold from 1971 to the present time while the price of gold per ounce increased by more than 37 fold. Gold actually gained in purchasing power as the US Dollar’s purchasing power declined.
An item that cost $250 in 2000 would today cost about $350. Again, a big loss in purchasing power for the US Dollar. By comparison, gold sold for about $250 per ounce in 2000 and today sells for more than $1300 per ounce. at the time of this writing.
Consumer prices increased about 40% from 2000 to the present time while the price of gold per ounce increased by more than 500%. Once again, gold actually gained in purchasing power as the US Dollar’s purchasing power declined.
US Treasuries rallied last week.
Chart Three is a weekly chart of US Treasuries.
Notice from the chart that 6 weeks ago US Treasuries “gapped up” in price. That means that yields fell.
On the surface, it may not make sense that the yield on US Treasuries would be falling. But, when one considers that negative yields exist in some places around the globe today, many investors looking for safety are happy to get SOME yield.
So, for the time being, US Treasuries fill the need. We do expect yields to rise again and the chart gap to be filled as it has in the past as seen on the chart.
At some future point though, we believe both US Treasuries and the US Dollar will fall as the easy money bubble bursts and an economic reset occurs.
“In prosperity our friends know us; in adversity we know our friends.”
-John Churton Collins