Gold and silver prices slid lower to close out the third quarter. Entering trading for the fourth quarter, the metals are back, once again, in the middle of the range where they have languished for more than three years.
The fundamentals which were expected to drive a breakout – high price inflation and plenty of geopolitical turmoil – don't seem to matter to futures market traders. It is extraordinarily frustrating for goldbugs to watch.
Some are second guessing the decision to buy metals. But declaring gold and silver have failed to perform as expected is one thing. Finding an investment which is likely to perform better is something else.
It helps to think about the alternatives.
Would it be better to sell metal and hold cash instead? The past three years have seen the biggest decline in the dollar's purchasing power in recent memory. The worst may be still to come.
The Federal Reserve has thus far stayed the course on tightening, that is true.
Here are some things which are also true. The economic reckoning for this tightening still lies ahead. The Leading Economic Indicators, inverted yield curves and plenty of other data confirm that recession is coming.
Meanwhile, Congress once again demonstrated it is incapable of reining in spending after passing a stopgap funding bill over the weekend to avert a government shutdown. Fiscal conservatives had insisted on some spending restraint, but House Speaker Kevin McCarthy threw them under the bus and cut a deal with Joe Biden and the Democrats.
The Federal deficit is now measured in the trillions of dollars annually and will only rise as an economic slowdown lowers tax receipts.
Somebody is going to have to buy all this Treasury debt.
Trouble is, one look at the yield chart is enough to tell the appetite is shrinking, not growing.
It is only a matter of time before the Fed once again emerges as the buyer of last resort for federal debt. If the recession gets bad enough, the reckless Congress is also likely to resume dollar-destroying stimulus. That makes holding cash anything but safe.
The equity markets also look like trouble. The drop in the S&P 500 has essentially mirrored the decline in gold prices over the last 30 days. The difference is stocks are historically overvalued while gold is frustratingly cheap.
The price-to-earnings ratio for the S&P 500 is currently 24.5.
That is higher than any peak during the entire 20th century, except for the 1999 dot com bubble. Meanwhile, the outlook for earnings is anything but good.
What about bonds? Prices have fallen and yields are up, but that does not mean it is time to buy. Corporate bonds most likely do not yet reflect the true risk of capital given that bankruptcies are surging and the outlook for earnings is grim.
Perhaps Treasuries will get a bounce when the Federal Reserve resumes monetizing the federal debt. The problem with making that bet is the assumption that the past will be precedent.
The weaponization of the U.S. dollar has seriously undermined its reserve currency status. Confidence is sliding. The next round of monetization will only hasten the decline.
Holding any sort of fixed-rate, dollar-denominated debt while the Federal Reserve note accelerates toward the cliff hardly looks wise.
How about real estate? Commercial real estate prices have fallen in some high-profile markets, such as San Francisco, but it looks like the worst may still lie ahead.
Demand for retail space has been vanishing as Americans shop more and more online. Likewise, companies are reducing office space as people increasingly work from home.
Factor in the prospect of recession and higher interest rates and now does not look like the time to bet on commercial real estate.
There are also not many bargains in residential real estate. Housing prices remain near all-time highs according to the Case-Shiller national index.
Higher interest rates have crushed demand for mortgages, but they also appear to be stifling supply. Homeowners are reluctant to sell homes when their existing mortgage rate is half what it will be if they move.
This impasse won't last forever. When it breaks, the odds favor housing prices moving lower. Home affordability is at an all-time low and that is going to matter at some point.
Most conventional assets look overvalued, while gold and silver look relatively cheap. The name of the game may be to tread water until capitulation in one or more of these other sectors brings the next wave of buyers into the metals markets.