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’.
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.
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.