Tag Archives: gold-silver ratio

Another Counter Cyclical Omen, Gold Silver Ratio

Along with the long bond’s bottoming potential, the sneaky gold silver ratio has been in a classic set of higher highs and higher lows (i.e. a bull rally).  The last year has been chock full of screwed up market signals (even to the degree that a flurry of well known market luminaries famously got out of the game) I assume compliments of the Fed and friends working the markets 24/7.  But normally (ha, what a word, normally) a rising gold silver ratio indicates liquidity stress developing and possibly an oncoming economic issue.

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Also normally (again, what is normal now?) a rising GSR does gold miners no good, other than to indicate a time of positive underlying macro fundamentals that would ultimately help the sector.

Gold Silver Ratio, VIX and the Broad Market

Yesterday the market’s signal was “Gary, you lost on this go round with the puts on SPY; admit it and take the loss!”

Today it is “Gary, your Asia, Emerging Market and US tech theme is over heating a little; think about taking the profits soon.”

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Gold-Silver Ratio & VIX, daily

I like neither of these charts if I am a bull.  The gold-silver ratio is making a weirdly bullish pattern at the top end of a support zone and the VIX is still in a series of higher highs and higher lows.

These appear to be bearish indicators beneath the joyous “China’s growing and we may not drone Syria!” endorphin release.  Just sayin…

Gold Silver Ratio Still in Play

The gold silver ratio (GSR) hit what could be described as a heavy resistance area a few weeks ago as the markets roiled and obsessed about ‘taper or no taper?’ and liquidity pretended to come out of the markets.  I say ‘pretended’ because rising junk to investment grade and Treasury bond ratios turned out to be a secret ‘tell’ beneath the surface that risk was still indeed ‘ON’.

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If the precious metals are going to find relief silver probably needs to out perform gold.  GSR works as a sort of metallic credit spread after all with the less risky and stodgy old relic doing better (or less worse) than his wild little brother when things get tough on the market liquidity front at least as relates to the ‘inflatables’ like the precious metals, commodities and some global markets.  The disinflationary pull and firm USD has helped Goldilocks see to it that there has been plenty of liquidity for US stocks thus far.

Just as silver blew off and topped out to signal the end of the last inflation hysteria in spring, 2011 (tanking the GSR) it should bottom out and lead vs. gold in any new inflationary cycle.  So far?  What inflation?

But the GSR did hit that big resistance zone, which was actually formed back when the Fed announced QE 2 and broke the GSR down hard from what I thought at the time was a nice bottoming pattern.

It has been a long, hard road for gold (and silver) bugs since QE 2.  Silver is in a big support zone, but it is also a thick support zone.  Just as the chart above can allow for more spikes up into resistance, silver can do some white knuckle testing of its big support zone.  Here’s the chart from NFTRH and eLetter updates this morning.

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We are looking at an equal and opposite RSI over sold to the former RSI over bought during the manic 2011 climax.  Silver has already done the negative equivalent of the first over bought RSI cluster, but what concerns me is that there was a second hump to an EXTREME and terminal over bought condition.  Could the opposite come into play?

Just a geek asking questions my friends, not trying to make predictions.  Better to ask such questions on a happy precious metals up day than when… well, you know.

I think in the context of 2 years of post blow off bearishness we are getting close to a bullish phase.  This argues for contrarians to be on alert, given the supremely bearish sentiment in this utterly destroyed sector.  But still I cannot help but wonder if those RSI’s are going to come to an equal and opposite state before the real bull relief comes.

A strong and definitive move, led by silver, in the precious metals would be helpful in negating the prospects noted above.

Scary Chart of the Day… Gold Silver Ratio

This liquidity sucker has been on a grinding drive higher since mid-April.  In a world suddenly replete with scary charts (hello bonds), the MACD on the daily gold silver ratio shows room for another burst upward.

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Gold Silver Ratio, daily

Worse still, check out the weekly…

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GSR weekly

I have been writing for months now about the risk building in this market.  But you don’t tend to get taken seriously when the thing just bloats and floats carrying all the dumb money.  Just ask Prechter.

The weekly view of the GSR should scare the bejeezus out of anyone who cares enough to look beyond the easy to digest and linear financial analysis readily available out there.  Global bond markets are imploding and funding is being terminated.  Period.

The market will bounce around and indeed I am still hoping for a pop to consider buying back bear positions.  But the situation is not good said not the wishful blogger, but the GSR, bond market, recent sentiment profile, etc.  The Fed is doing what the market tells it to do with this taper hysteria we have going on now.

Gold Silver Ratio Updated

A couple weeks ago in NFTRH 241 we reviewed the bullish looking gold silver ratio (GSR) and noted a baby inverted H&S from which it is approaching a measured target.

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Gold Silver Ratio, weekly

A relief phase, where silver out performs gold could kick in at any time.  But then we also note that the big downtrend out of 2008′s blow off top was broken as the little H&S formed and resolved upward.

The bad news is that this indicates liquidity contraction and the worse news is that had better not be a big inverted H&S that has formed because if it is, it’s implication is not at all good for much of anything, including possibly even the prices of silver especially, and gold.  Gold’s value is different from its price.

Price could drop considerably and incredible value could still be retained depending on what is happening around the barbarous anchor.  Please get that concept about gold.

Let’s see if silver gets a turn to lead in the short term, but stay on alert for the big daddy inverted H&S.  It is truly a concerning picture for most investments positively correlated to the economy.  Sort of a gold-CCI ratio on steroids.

Gold Silver Ratio – Who Needs Indicators?

Well me, for one. Indicators are simply a must for me to be used in conjunction with regular TA. But the indicators have blown a gasket lately as economic contraction is lurching into the picture, the Gold Silver ratio is doing its job of indicating that, and yet the stock market levitates while precious metals are destroyed and commodities are not far behind.

Here is the GSR through yesterday. It’s up again today.

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Gold Silver ratio, monthly

Gold Silver Ratio Continues to Rise…

And I continue to wonder if maybe an equal and opposite condition to the inflationary mess that Bernanke created in 2010 lay in the future.  Note the over sold RSI shaded in yellow.  What would happen if this ratio rises enough to create an equally over bought situation.  It would not be pretty, that much I am sure of.

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Gold silver ratio, weekly

Gold and Silver as a Macro Sign Post

The last week has been a fright fest for the gold “community”.  But these are the financial markets, not a community.  There is a world outside of what ever is going on in gold and silver.  A macro economic backdrop filled with entwined and correlated assets and markets all trying to form a message when taken as a whole.

Sure, gold – as a monetary metal – is a big one when it comes to macro indications, but what is really important is the great question that has been ping-ponged about for many years now between intellectuals on either side of the debate; inflation or deflation?

This post dials things out from the hysteria of the gold bear market (it is a savage cyclical bear, and we will certainly deal with it in a constructive way on the market’s terms) to the big picture and the eternal debate between ‘inflationists’ and ‘deflationists’.  Really, as I have felt all along, we have inflation and we have deflation… all along the continuum, as illustrated by the monthly chart of the 30-year T bond yield.

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30 year yield, monthly

The continuum of gently declining interest rates on long-term T bonds implies a deflationary backbone spanning decades.  Against this firm disinflationary signal, policy makers have had license to print money at various times and with varying intensity.  The MACD trigger on the chart above implies that a new inflation phase is trying to get started, but this is restrained by what looks like the second of two bear flags that have formed just below resistance at a 3.5% yield.

As long as rates remain below that resistance level, the deflation argument is alive and well.  The last time the ‘continuum’ hit the red line (100 month exponential moving average), which has been the limiter of inflation expectations for decades, the second phase of the commodity bubble was exploding to new highs, Bill Gross made a highly publicized short against the long bond (in essence, meaning he was bullish on inflation) and the CCI commodity index topped in early 2011; 2 years ago.

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CCI, weekly

While commodities have not experienced the drama that is the gold market, their persistent weakness has encompassed important ‘indicator’ commodities like copper/base metals and crude oil.  Technical damage is being done in those areas.  We have been following the progress of this degradation each week in NFTRH and asking ourselves the question ‘could it be deflation on the horizon?’

Folks, that is a breakdown on the weekly CCI chart above.  Not only is the index losing a channel, but a moving average cross (red dots) has taken effect that has signaled strong bear phases in the past.  Respect the deflationary argument.

But the post is titled ‘Gold and Silver as Macro Sign Post’ so let’s get down to it.

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US dollar & Gold Silver Ratio (GSR), weekly

The gold silver ratio (GSR, bottom panel) would indicate market liquidity contraction and associated deflationary forces.  That is because though gold obviously gets hurt badly with a coming deflationary phase silver, the cross-dresser precious metal/commodity gets hurt worse.  So is the breakout of a trend that has been in force since 2008 a warning to deflation?

Just as we watch the T bond ‘continuum’ for indications on yields, we need to watch the GSR for its would-be signals about liquidity, which after all is what the current QE operation is all about.  So far, the GSR ain’t buyin’ it (QE 3, ‘to infinity’, etc.) as it did in 2010′s inflationary kick off.  No, the GSR is rejecting the policy and hammering gold (but silver worse).  Gold is a monetary asset that recovered first in the 2008 crisis.  This time gold and silver are declining first and hardest and their relation ship (GSR) should be watched as an indicator to coming events.

The deflationary case has not yet been confirmed, but it is strengthening.  Likewise, all of this going on today could be a prelude to the mother of all inflation problems.  But it is so vitally important that we subordinate ourselves to the market and its indicators because there are super smart people on either side of the ‘i’/’d’ debate and half of them are going to be very wrong.

If the GSR remains on this signal (in breakout mode), then watch for the US dollar to become strong – not because of any intrinsic value it may have – but because it is a claim on liquidity, which is intensified by its reserve status.  Remember how they knee-jerked into gold during the euro crisis and how they knee jerked into USD and then gold during ‘Armageddon 08′?  That is what happens in a rush for liquidity.

As for the USD’s technicals, it is actually losing one of its weekly moving averages, but a new bear signal would not come unless the moving averages cross down.  The most recent cross down (first yellow shaded area) was a fake out, as could be the current cross to up, prior to silver beginning to out perform gold and commodities regaining lost support.

But the signals are the signals and if deflation is in the near future – as currently indicated by T bonds, precious metals and the commodity complex, then the USD is going to ramp up.

It is a complicated situation, and that is why I say you have got to be willing to do the work to stay on the right side of it.  Or, if you are a normal person with a normal job and life, then associate yourself with people who are willing to do the work with an open mind subject to the many twists and turns that this wonderfully complex macro situation is going to present.  People should know by now that nobody has all the answers.  This is a work in progress on the macro.  Dogmatic beliefs will be (and have been) punished.

It would be my pleasure if you’d join me – if you so desire – at the hardest working newsletter (and dynamic interim ‘in-day, in-week’ update) service I know of if you are so inclined.  We are not trying to predict anything.  We are simply using hard work, discipline and open minds to remain on the right side of a complex situation.

Otherwise, I’ll keep writing these public articles and I hope you’ll keep reading them.  Tuning out the usual hysteria, what is happening on the macro is happening and we have all got to be willing to realize we do not have all the answers and there is always learning to do.

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