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Fundamentals
In a report on Sunday, May 1, 2022, “60 Minutes” reported on the war in Ukraine and the spillover from the war into Russia and Moldova. The U.S. supports a Ukraine win and has pledged $33 billion to support the country. More missiles hit Odessa, Ukraine, a major exporter of grain to the world. The United Nations World Food Program is helping to feed thousands of people in Odessa and about 2 million more in other cities in Ukraine, who have no access to food. Millions more, the UN estimates, are lacking food, especially in eastern Ukraine. The Russians are not allowing food to be delivered to starving people.
In Odessa, an oil terminal was destroyed. Odessa is also a major port for exporting oil. Odessa’s port is closed, which has cut off Ukraine, one of the largest exporters of food, including corn, wheat, and sunflower oil. Ukraine grows enough food to feed 400 million people. This is already causing food prices to spike and affecting the poor, but eventually it will not only affect the poor – it will affect everyone. In 81 countries, the UN is feeding more than 145 million people around the world. Ukraine is the breadbasket of the world, but now has bread lines for its own people.
This is when farmers plant corn, but not in Ukraine because the farmers are now soldiers. The tractors lack diesel. Harvests are also stopped, because of a lack of labor and diesel for tractors and harvesters. Ukraine’s harvests this year are going to be a small percentage of what it was last year because of the Russian invasion of Ukraine.
The UN programs are already cutting rations by half by “taking food from the hungry children to give it to the starving children.”
People in Russian-occupied eastern Ukraine are also probably starving. The Russians appear to be determined to starve the Ukrainian people out of eastern Ukraine.
Technical Analysis and Standard Deviation
The Fed
The Federal Reserve is expected to announce its next move on interest rates, possibly 50 basis points, so the markets are choppy today on May 3, 2022. The market appears to have already discounted that possibility. The markets are raising interest rates instead of the Fed having to do it. We already have almost a 3% rate on the 10-Year Note. We have seen a phenomenal move up since 2020, from .33% Yield. We are seeing a major recalibration of the highly leveraged economic system as interest rates go up rapidly.
Silver
Silver is at $22.74, up 16 cents. The market trading above the mean of $22.57, according to the Variable Changing Price Momentum Indicator (VC PMI), means that there is a bullish price momentum coming into today. This momentum is within a bigger trend based on the 9-day moving average, which is bearish. The bullish targets for today are $23.00 and $23.32. We seek to take the highest probability trades, so we wait for the market to reach extremes above or below the average or standard deviation. We do not trade near the average. We trade the extremes, which are one or two standard deviations above or below the mean, called Buy and Sell triggers.
The price is below the weekly standard deviation of $23.26. This is bearish, so we have a bit of a conflicted situation. The weekly signal is bearish, while the daily is bullish. Today is a good time to watch the market and see how it trades, whether it is going to activate any high-probability trades by going up to the Sell 1 or 2 targets or down to the Buy 1 or 2 levels at $22.25 to $25.82. So, silver is neutral right now with no signals.
Overall, and based on the fundamentals, silver is probably the most undervalued asset in the commodity markets. We recommend adding silver to your holdings for the long term.
Gold
Gold is a little different story. It has activated a weekly Buy signal from $1867. It met the initial target of $1872, which is the daily average price. The trade is long on the weekly at $1867. The target is $1901, which is the weekly standard deviation for the rest of the week. We are in an area of support and the market is oversold. This is where you should accumulate from $1867 to $1825, which are the Buy 1 and 2 levels. We bought gold at $1859.60 to go long. The target is $1872, which is a $1,240 profit on one contract. The weekly target is $1901.
The Sell levels of $1919 and $1891 are also in play. If the market reaches those levels, then they are good levels to go short the market.
We use a fixed-dollar stop, which we are willing to use. We do not use straight stops. If you are conservative, you can use a stop below $1867.
As the markets move to the levels we have been discussing, the market has already taken into account the fundamentals. We focus on the VC PMI and its artificial intelligence algorithm to trade the market, instead of trying to figure out the impact of the fundamentals on various markets. With more than $30 trillion in debt and inflation increasing, precious metals should be running up fast.
Precious metals still have not responded to the world situation. Gold hit $2078 just after the war began, but it came back down after that. The market does not appear to be heeding the tremendously bullish fundamental news. By the time the prices reflect the fundamentals and they hit the media, with gold probably above $2078, it may be too late to get in and make significant profits. The fundamentals are building the price of gold and silver like a pressure cooker.
Grains
The Russia-Ukraine war has led to the closure of all of the Black Sea ports and ports on the Sea of Azov, so Ukraine can’t export its grains, soybeans and other agricultural products. This is leading to a food crisis and rising prices in grains and other commodities.
“We are probably going to see a hot summer in prices for wheat and other grains,” Equity Management Academy CEO, Patrick MontesDeOca said.
Wheat hit 11.06 and this level is going to be challenged. The war in Ukraine is really a war between Russia and the West, which has and will continue to have a huge impact on inflation and food and energy supplies. The pressure on the Fed and other central bankers to raise interest rates is mounting. It is hard to do that when we have so much debt.
Soybeans are also at a high of 17.59. They could reach $20 in the summer. Soybeans rallied from 11.81 to 17.59, since the invasion of Ukraine.
The war in Ukraine is just compounding the food issues we faced due to supply problems caused by the pandemic. The grains appear to be consolidating their prices before what will be a historic move up. We have record demand at a time of much lower supply. We could be looking at famine and food shortages, as the UN fears.
“We are going to see record prices that we have never seen in the history of these markets,” MontesDeOca said.
Many people compare today with inflation in the 1970s. However, we have much heavier debt today than in the 1970s. Russian crude oil and natural gas may be embargoed, which will only push inflation higher as gas and oil prices will rise quickly. The question is how much worse are things going to get? It certainly shows no sign of an end in sight.
