So our thesis has been that a concurrent rise of USD and the Gold-Silver ratio (GSR) would not be a good thing for markets. Stick it in the blender and mix with several other indicators (we have not even mentioned weak junk bonds and junk to quality credit spreads, at least not publicly) and you have ‘so far, so good’ on a coming bear case.
To review, a rising GSR means that speculative liquidity is coming out of the markets, as in risk ‘OFF’. The rise in USD is a fundamental consideration that would hit manufacturing first. Here again, I tell you that the biiwii guy, a former manufacturing person, was the first to project coming US manufacturing strength for NFTRH subscribers. Just to counter a few wise guys who would finger point and yell ‘perma bear!’ Today’s firm bulls were all hiding under rocks as Congress did the Fiscal Cliff Kabuki Dance at the time.
To put things in non-technical terms, I think some shit’s happenin’ out there folks. We’ll see.
People should try to get their heads out of their ass(et) classes and look at the signals that these assets may be sending. Look, gold bugs are screwed and being run up the analytical flagpole as outdated anachronisms and stuffy old fogies with outmoded views. The stock market has proven bullish again and again and policy making has worked swimmingly for a couple years now.
So take out the gold bug, the silver bug, the commodity and inflation bug and the stock market bull and/or bear and just look at the signals. The Gold-Silver ratio (GSR) is rising strongly and it is happening in unison with the now well bull horned US dollar, which everyone left for dead just a few months ago *. The question that should be asked now is not ‘how do I defend my stance?’ or ‘what asset should I buy or sell?’ but rather, ‘what does this mean from a macro market view?’
The correlation by daily view of the GLD/SLV and UUP ETFs is not very good, but over a longer-term is GSR and USD are generally in line. We have always felt that the USD (a global asset anti-market or counter party) is a bedfellow of the gold-silver ratio (a risk off/illiquidity indicator).
More to come on this in the form an NFTRH excerpt later on. But we should be beyond hoping that this or that asset class will go up and into a time of evaluating what, if any meanings can be taken from the USD-GSR relationship. A lot of people are interpreting the rise of the USD as a bullish event, with only gold and commodities to suffer. They had better do the work to confirm that view rather than just making assumptions.
* Not by me and not by my market management service. We charted its hold of important support and casually followed its progress every single week. Now Uncle Buck is all lit up in neon and as usual, a majority is now aboard the story and promoting distortions.
One currency that has resisted the power and authority of Uncle Buck is unsurprisingly the one that denominates a relatively sound and stable financial economy; that of Singapore. It looks like USD is in a bearish Symmetrical Triangle in SGD. Just poking around the cool dynamic charts at Freestockcharts.com (linked on the right side bar) when I found this.
Excerpted from NFTRH 308’s opening segment…
A Closer Look at the US Dollar
Using the standard weekly currency chart we followed along for months as the Euro found resistance at the long-term downtrend line as expected, the commodity currencies long ago lost major support and non-confirmed the commodity complex and the US dollar moved from a hold of critical support, to a trend line breakout, to its current impulsive and over bought status. It is time now for a closer look at Uncle Buck since this reserve currency is key to so many asset markets the world over.
As the charts below show, USD is over bought on both daily and weekly time frames. But the monthly is interesting because its big picture view is that of a basing/bottoming pattern, and it is bullish. That is a long-term director, so regardless of what happens in the short-term, a process of unwinding the hyper-inflationist ‘Dollar Collapse’ cult is ongoing. Signs point to disinflation toward deflation.
The UUP ETF already hit its measurement at 22 and now the over bought Uncle Buck is nearing its measurement at 83.50. One valid question in trying to plot Unc’s future is how long will the Fed choose to sit by and hold ZIRP as the economy strengthens?
Personally, I don’t understand how they can conduct this Kabuki Dance where half of them fret about being too dovish and the other half of them act as if they can maintain ZIRP-Infinity (or even ZIRP-mid/late 2015). The economy is strong, the currency is strong and the stock market is strong. What could go wrong? Why not normalize rates in 2% chunks beginning next week? Ha ha ha…
We had the US dollar in a bullish pattern back in July and wouldn’t you know a sharp rise came in concert with a stock market drop. The US market, like others in the developed world keys off of policy making and its ability or willingness to [pick one... mute, compromise, repress, devalue...] the currency. So the sharp rise in July did not go down well with asset markets.
As the stock market bounces it is not surprising that Uncle Buck has consolidated above the pattern neckline. MACD and RSI look suspect and if USD rolls over the stock market could continue to benefit. A strong visual support area is noted at the moving averages.
Well, Unc has been rallying hard lately. At least part of this must be in anticipation of some hawkish talk expected to emanate from Jawbones shortly. But what if they continue to glad hand the market? The over bought US dollar could be vulnerable to some extent.
[ed: Excerpted from NFTRH 301's opening segment. Those looking for paint by numbers directions and casino game instructions (talking to readers at a certain site that may or may not re-publish this article) feel free to just skip the article. You will not get what you are looking for. The balance of NFTRH 301 did the nuts and bolts technical work on the relevant US and global markets, precious metals, currencies, etc.]
[edit 2] Based on reader feedback from another site, it appears I do not understand inflation, nor that gold’s purchasing power is superior to that of the USD over the long term. What I take from this is that if you post anything positive (like USD’s ‘price’ potential) about the buck and/or negative (like gold’s price vulnerabilities) about gold certain handbook carrying people in the gold ‘community’ are going to lash out first, and read/consider second. In other words SSDD.
Take a look around the gold bull landscape and tell me how many of them are featuring a chart like this, showing the US dollar in a bullish short-term stance (to go with the weekly bullish stance we have noted for so long in the ‘Currencies’ segment).
This is not to say that the US dollar has real value. How can it when it is hopelessly dragged down by a national debt-for-growth obsession. But as with gold, value is one thing and price is quite another. It is just that one (USD) receives a price bid due to a ‘nowhere else to hide’ sort of mentality by the majority when asset market liquidity becomes constrained and the other (Gold) receives a more solid value bid, over time.
Guest Post by Michael Ashton
The recent, aggressive ECB ease, combined with some mild Fed growls about increasing rates “at some point,” ought to be good news for the dollar against the Euro. And so it has been, although as you see in this weekly chart (source: Bloomberg) the weakening of the Euro has been (a) mild and (b) started more than a month before the ECB actually took action. (Note that the units here are dollars per Euro).
Guest Post by EWI
Very few people know that the United States did not create a monetary unit pegged to “buy” some amount of metal, as if the dollar were some kind of money independent of metal.
In 1792, Congress passed the U.S. Coinage Act, which defined a dollar as a coin containing 371.25 grains of silver and 44.75 grains of alloy. Congress did not say a dollar was worth that amount of metal; it was that amount of metal. A dollar, then, was a unit of weight, like a gram, ounce or pound. Since the alloy portion of the coin was nearly worthless, a dollar was essentially defined as 371.25 grains — equal to 24.057 grams, or 0.7734 Troy oz. — of pure silver. (15.43 grains = 1 gram, and 480 grains = 1 Troy ounce.)