Gold-Silver Ratio in Gear

By Biiwii

Now that the US stock market has gotten in sync with the rest of the world in its ups and downs, it also joins the rest of the world in generally (and loosely; it’s not a minute-by-minute relationship) being inverse to the Gold-Silver ratio (GSR, AKA the “metallic credit spread”Hoye).

Here is the daily view of the GSR, showing a gap up and spike that came with the stock market’s big disturbance and a consolidation down that has come with its relief bounce.  This is a bullish chart and so, it is a short-term bearish chart for US and global stocks.  GSR broke out and is bullish while above the MA 50’s, MACD and RSI are positive and AROON is trend up.

gold-silver ratio, daily

GSR weekly is fully bullish as well.  It adds a long-term up trend to the daily chart’s bull features.  You can see the long and grinding journey upward GSR has taken since it was drubbed in 2010 (into 2011) by full frontal QE, as silver exploded vs. gold and the ‘inflation trade’ took off in 2010 and eventually blew out (in spring of 2011).

gold-silver ratio, weekly

GSR monthly offers a different view however, as it is nearing historical resistance.  Maybe when this resistance is hit it will hold and those who have, shall we say cheered so long and hard for silver can finally deliver the ultimate “I told you so!” after 4+ years of futility.

gold-silver ratio, monthly

The bottom line is that the Gold-Silver ratio indicates more short-term problems in US and global stock markets, commodities and even potentially the precious metals themselves.  But the bigger picture view at least offers a line in the sand (long-term resistance) where an ‘inflation trade’ may finally get going again.

That scenario could be the product of a saturation of the non-stop inflation that has been promoted in the US and globally by policy makers, with a global deflationary backdrop hiding its effects.  Alternatively, it could be the product of panic by the US Central Bank, should the stock correction get serious enough.  The entire recovery out of 2009 has been, after all, about risk ‘on’ asset market speculation and wealth effects.

Whatever it is, you can bet that political animals and powerful policy makers alike do not want to see the Gold-Silver ratio break out of its big picture limits.

The Right Way to Think About Gold Supply

By Steve Saville

Here’s the wrong way to think about gold supply: “Although gold’s aboveground inventory is huge compared to current production, only a tiny fraction of this gold will usually be available for sale near the current price. Therefore, changes in mine supply can be important influences on the gold price.” I’ll now explain the right way to think about gold supply.

Whenever I point out that the supply side of the gold market consists of the entire aboveground gold inventory, which is probably somewhere between 150K tonnes and 200K tonnes, and that the gold-mining industry does no more than add about 1.5%/year to this inventory, an objection I often get is that only a tiny fraction of the aboveground inventory is available for sale at any time. This is of course true, and nobody who has a correct understanding of gold supply has ever claimed otherwise.

Continue reading The Right Way to Think About Gold Supply

Pivotal Events

By Bob Hoye

“Massive Support in September”

bob hoye
Click for PDF report

The Bear Market Everyone Saw Coming

By Biiwii

The title lets you know where this article is going.  For such a routine correction in the US stock market, the Psych/Sentiment backdrop has gotten way out of whack.  Do some analysis on Rydex Bull/Bear fund allocations among investors and you will find a historic knee jerk reaction into bear funds over bull funds (by those who still use Rydex funds).

Go do a Google Trends search on ‘stock market crash’ or ‘bear market’ and you get the following results, showing a big rise in interest among the public.

Market sentiment: stock market crash

Market sentiment: bear market

Continue reading The Bear Market Everyone Saw Coming

Quick 10% Declines Aren’t Extraordinary

By Steve Saville

Here is an excerpt from a commentary posted at TSI on 30th August:

During bull-market years and bear-market years, it is not uncommon for the US stock market to experience a quick decline of 10% or more at some point. For example, there was at least one quick decline of 10% or more in 1994, 1996, 1997, 1998, 1999, 2000, 2001, 2002, 2003, 2007, 2008, 2009, 2010, 2011 and 2012. In other words, 15 out of the 19 years from 1994 to 2012, inclusive, had quick declines of 10% or more. Only two of these years (2001 and 2008) had declines that could reasonably be called crashes.

The periods from mid-2003 through to early-2007 and late-2012 through to mid-2015 were unusual because they did NOT contain any quick 10%+ declines. In other words, the 12.5% decline in the S&P500 Index (SPX) from its July peak to last Monday’s low was not extraordinary in an historical context, it only seemed extraordinary because the market had gone an unusually long time without experiencing such a decline. That is, it only seemed extraordinary due to “recency bias” (the tendency to think that trends and patterns we observe in the recent past will continue in the future). Furthermore and as noted in the email sent to subscribers late last week, this year’s July-August decline was significantly smaller than the July-August decline that formed part of a bull-market correction in 2011.

In summary, what happened over the past few weeks was not a crash by any reasonable definition of the word and was only extraordinary in the context of the unusually long period of low volatility that preceded it.

That being said, the recent market action could well have longer-term significance. Just as the sudden increase in volatility in 2007 following a multi-year period of exceptionally-low volatility marked the end of a cyclical bull market, the sudden increase in volatility over the past few weeks could be marking the end of a cyclical bull market. In fact, there is a better-than-even-money chance that this is the case.

Also, while the recent quick decline doesn’t meet a reasonable definition of a stock-market crash, it could be part of a developing crash pattern. Recall from previous TSI commentaries that a US stock-market crash pattern involves an initial sharp decline in the 7%-15% range (step 1) followed by a rebound that retraces at least 50% of the initial decline (step 2) and then a drop back to support defined by the low of the initial decline (step 3). A breach of support can then result in a crash. Step 1 of a potential crash pattern is complete and step 2 is now very close to being complete. Note, however, that even if steps 2 and 3 are completed over the next couple of weeks the probability of a crash will still be low, albeit much higher than it was a few weeks ago.

Man, That’s Cheesy…

By Biiwii

[edit] I actually agree with Sinclair’s views on monetary sociopaths.  Beyond that and certain dogma that rings true, it’s too much information the likes of which has frightened people into what have been incorrect positions for years.

After the now-famous WSJ post, it seemed as if a bottom had just been called in gold…

Let’s Be Honest About Gold: It’s a Pet Rock

It seemed that the elements were in place for a contrarian rally if not bull market bottom.  Along with negative gold items routinely appearing in the financial media and a Commitment of Traders structure that had become very bullish, gold sentiment was bleak by indicators we track in NFTRH.

My how a 6% rally with an accompanying stock market down spike have changed things…

sinclair, gold sentiment still not ready
Click for the video @ YouTube

Here is the article associated with the video, sent to me yesterday…

Plunge Protection Team Losing Control of Markets -Jim Sinclair

I won’t even go into Sinclair and his ‘same old, same old’ spiel, trotted out the minute the stock market cracked.  Let’s just focus on one micro element of a case that implies gold bug sentiment is not yet where it needs to be for a real bullish stance.  From the article’s comments section…

Steve (website visitor):  “I used to believe in the rampant manipulation of the gold markets until i got proper information and grew up. If Gold is always manipulated to the downside, why buy it?”

Greg Hunter (website host):  “Steve you grew up to be an idiot. I got “proper information” from Dr Paul Craig Roberts* who laid out an analytical case for gold manipulation.”

It’s concerning if you are a gold bug, because the bear has apparently not dug deep enough into all the bunkers to devour the most ardent holdouts.

  • Above we have “Dr Paul Craig Roberts”.  From NFTRH 355 (very coincidentally I was reminded of this by a subscriber this morning):

Have you noticed that the bear and/or gold communities tend to make sure they call John Hussman “Doctor Hussman”, Jim Willie “Doctor Willie”, Robert McHugh “Doctor McHugh”, Chris Martenson “Doctor Martenson” and any other Ph.D. writing about markets “Doctor”, while conveniently forgetting to label the likes of “Doctor Bernanke” as such (“Helicopter Ben”)?

I don’t know about you, but when I am reading articles and I see a writer labeling someone with whom he or she agrees (and with whom they want you to agree) “Doctor” in order to convince the reader of the material’s seriousness or worthiness I think “man, that’s cheesy”.

Time to Retire the 20% Bull/Bear Market Rule

By Michael Ashton

Officially, Crude Oil has had the worst bull market ever.

According to a headline on Bloomberg on Monday, Crude is in a bull market. The headline screamed “WTI CRUDE CLOSES UP 29% FROM AUG 24 LOW, ENTERS BULL MARKET”! On Tuesday, after a 7.7% fall from Monday’s close (-100%, annualized), the bull market doesn’t seem so…well, ebullient.

Okay, sure, this is a pet peave of mine. I don’t know whose idea it was to call a 20% advance from the prior low a bull market, and a 20% decline from the prior high a bear market, but I am pretty sure that they didn’t intend for that 20% to be applied to all markets, at all times. So a 5-year Treasury Note is not in a bear market until it falls 20 points (or…is that 20% of the current yield? I guess it depends who writes the headlines!), but energy futures which can move 20% in a couple of days, or corn futures which can double literally overnight if there is a drought, can be in bull and bear markets a couple of times per month. Does this make sense?

Add to this the obvious absurdity of the idea that we can know in advance whether an asset is in a bull or bear market. If you are telling me that Crude rallying 20% off the lows means that it is in a bull market, and that means I can be long Crude comfortably, knowing it is likely to rally from here – then you need to quit telling me anything and go make a fortune trading.

We can only know a bull market or a bear market in hindsight. That is, even if 20% is the magic number (and I can’t think of why that would be so), the best we can say is that Crude was in a bull market on Thursday, Friday, and Monday when it rallied about 27%. Does that help us, going into Tuesday?

Evidently not!

On China’s Devaluation

By Steve Saville

Wrongheaded Thinking About China’s Devaluation

After China’s government announced a small reduction in the Yuan’s foreign exchange (FX) value early last month, US Presidential aspirant Donald Trump immediately leapt onto the nearest available podium and exclaimed:

They [the Chinese] continuously cut their currency. They devalue their currency. And I have been saying this for years. They have been doing this for years. This isn’t just starting. This was the largest devaluation they have had in two decades. They make it impossible for our businesses, our companies to compete. They think we’re run by a bunch of idiots. And what’s going on with China is unbelievable, the largest devaluation in two decades. It’s honestly…a disgrace.

Continue reading On China’s Devaluation

Weekly Snapshot

By Alhambra Investment Partners

Top News Headlines

  1. Whipsaw market in full effect. Stocks stage a bounce-back, at least temporarily. The VIX Index is still at 26.
  2. Crude oil up over 10% for the week; biggest weekly gain in 6 years.
  3. Sanders, Trump ride anti-establishment wave.
  4. Fed rate cut to be delayed?
  5. Alaska’s Mount McKinley to be renamed Denali.

Random Thought Of The Week

Is China jumping the gun, giving the US economy a rate hike before the Fed even gets in the game? Even in the face of widespread concern about global growth Treasuries spent most of last week in search of a bid. We know China and the other emerging markets are selling Treasuries to try and defend their currencies. Hell, that was the plan, the entire reason for accumulating all those reserves. I do wonder if anyone thought that plan through. A slowing US economy isn’t going to make emerging markets perform any better.

Chart Of The Week

Continue reading Weekly Snapshot

Credit Bubble Bulletin

By Doug Noland

Carry Trades and Trend Following Strategies

The week commenced with yet another “flash crash.” The August 2015 version was notable for its ferocity and impressive global scope. Then there was the Dow’s 1,200 point “buy the dip” (and rip the bears’ faces off) rally from Monday’s lows. At Wednesday’s low point, the Shanghai Composite had sunk 18.7% from last Friday’s close, before a 13.4% rally left the index down 7.9% for the week. Currency markets, especially EM, were chaotic. From my perspective, the systemic nature of market dislocations provided decisive confirmation of the Global Financial Fragility Thesis.

Before diving into the present, let’s set the tone by reminding readers of an important but commonly unappreciated aspect of the Fed’s previous failed reflationary episode: Cheered on by “Keynesian” inflationist doctrine, the Fed specifically targeted mortgage Credit as the primary mechanism for post-tech Bubble system reflationary measures. In what was too surreptitious, government-directed mortgage Credit was unleashed to overpower deflation risks.

Continue reading Credit Bubble Bulletin

NFTRH 358 Out Now

By Biiwii

US stock markets need to finish the bounce (per SPX and VIX targets) to activate part 2 of the plan.  Then, out beyond these short-term moves is a decision point between cyclical bear and final bull phase (manic up).  No need to make predictions right now.

Certain global stocks markets are bouncing toward clear bearish (shorting) setups, commodities are in a bear bounce as are precious metals, which have the distinction of improving fundamentals over commodities.

We also updated indicators, currencies and market sentiment.

Another report that I found very helpful in clarifying my own views.

nftrh 358