Deflationary Straw Man

straw.manNo matter the debates over inflation vs. deflation, increasing employment vs. sound monetary policy or systemic health vs. fragility (and whatever else is flying around in Jackson Hole this week), the CPI marches onward and upward.  That is the system and it is predicated on creating enough money out of thin air while inflation signals are (somehow) held at bay.

The Straw Man* in this argument lives in the idea that inflation is not always destructive, that inflation can be used for good and honed, massaged and targeted just right to achieve positive ends to defeat the curse of deflation that is surely just around the next corner.  Currently, the Straw Man is supported by the reality of the moment, which includes long-term Treasury yields remaining in their long-term secular down trend.

Indeed, right here at this very site was displayed much doubt about the promotion having to do with the “Great Rotation” out of bonds and into stocks (i.e. that the yield would break the red dotted EMA 100 this time).  We noted it right at that last red arrow on the Continuum© below.  Now, with commodity indexes right at critical support and precious metals not far from their own, the time is now if a match is going to be put to that dry old Straw Man and silver is going to out perform gold, inflation expectations barometers (TIPS vs. unprotected T bonds) are going to turn up and the Continuum is going to find support.

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NFTRH; Silver’s Daily Chart Parameter

We’ll keep it simple in managing this morning’s decline.  The silver support zone has been 19.50 to 19.75 (chart from NFTRH 300 below).  The lower end of this range is getting tested this morning.  Any lower than that and the situation becomes abnormal to a short-term bottoming view.  A hold of that area ups the aggravation level but would probably be ultimately constructive.

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HUI, Gold & Silver; Fun With Monthly Charts

Outside of the sound practice that is physical gold ownership in a time of monetary gamesmanship, the precious metals sector is all about speculation, at least according to 9 out of 10 chart jockeys and momentum junkies micro managing every short-term twist and turn.

Indeed, NFTRH manages gold, silver and the gold stocks on down to the short-term views as well, but that is only because the long-term views have stated that this is a time to be paying attention.  Do we pay attention because we have waited so long to promote our orthodoxy and finally be right as gold bugs?  No.  We pay attention when a chart tells us to pay attention.

While we manage the shorter-term views (both macro fundamental and technical) rigorously in the weekly report and interim updates, here I’d like to dial out to the big monthly picture with 3 large (click to expand as needed) charts of HUI, Gold and Silver to see their stories, which are the reasons we are managing shorter-term views.

HUI Gold Bugs Index


First HUI monthly reviews the warnings to the analysis from 2012 and 2013.  They were very clear and should have kept people out of much of harm’s way with respect to gold stock speculation.

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NFTRH; Gold Ratios & Implications

The real or asset adjusted price of gold continues to make positive progress in several areas.  Below we update gold ETF GLD vs. a few other asset classes, primarily commodities, which makes up the ‘real’ price of gold and the big picture macro plan per the top pane of this chart.  If Au-CCI remains strong, the S&P 500 (lower panel) would be expected to weaken again at some point.

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