Before I begin this post I am going to note again up front that I spent much of the time pre-FOMC being cautious on the precious metals, especially since silver ripped to and tentatively through the limits of decency vs. gold. So this big up swing has got me somewhat surprised, though positioned well enough as our theme has been an ‘inflation trade’ that the Fed has signaled it wants, in the words of Janet Yellen over the last month and in the in-actions of the committee since it withdrew from QE3.
What is happening now is on the verge of what happened in 2010, when QE2 sent the gold-silver ratio straight to hell and everything went up in an asset market party. You couldn’t help but make big money in 2010. In this morning’s stock market post we speculated about QE, noting how it is the thing that has kept the market aloft. Here is the gold-silver ratio breaking down from its trend.
As a reminder, here is the historical chart showing what happened in 2010 when the GSR broke down. The chart above is only hinting, it has not begun a downtrend. But is the hint about a coming QE action or are silver bugs just getting really really peppy?
Others may have called the bull before it happened (for the umpteenth time in some cases) but HUI 211 was our door opener to a new technical bull market. Per this weekly chart we have noted repeatedly in NFTRH. The higher high above 211 is the door opener. Later, 261 sets a cyclical bull market in stone. The week is not over, but this breakout looks determined.
Here is the daily view, which just keeps on breaking upward from small consolidations that do not even reach the EMA 20 (orange dotted).
We had a pre-FOMC NFTRH update a couple days ago due to poor economic data (Durable Goods and Consumer Confidence, since joined by poor GDP) and its likely effect of keeping the Fed in a dovish state and hence, positive for the precious metals. From the update…
“With reference to the previous posts about about weak economic data, the fundamentals for gold are getting a boost in this data. Durable Goods, Machine Tools and Consumer Confidence have all decelerated. The risk of the Fed being sensitive to inflation may have been reduced here in favor of not wanting to tank the markets.
FOMC or not, I have reduced my short positioning [*] to some puts and a bear fund [sold yesterday, post-FOMC] on silver. I took a small loss on the silver miners short. What’s more, I have added back GDX on its small pullback because I can take downside when I feel I am right with the fundamentals and generally that is still the case for the gold sector (although gold vs. crude oil still bears watching).
The FOMC meeting comes along with a bearish Commitments of Traders structure and at some point we might wonder just how different it is this time. We have noted for 8 weeks now (beginning in NFTRH 384) that due to “bull market rules” CoT could be less dangerous now, but this is dragging on interminably and one would have thought a decent reaction would have visited by now. Not so, not yet.
Here are the charts of the 3 Amigos [GDX, GDXJ & SIL, omitted] for your viewing pleasure. So far, all that has happened are little micro pullbacks. If the Fed rolls over tomorrow those little flags could prove bullish in a hurry. If they get tough, the key supports are noted.”
The Fed is showing its hand but it has not shown new extreme policy. Is that what the silver-gold ratio is forecasting or are there going to be a lot of damaged silver bugs at the end of the momo? Very very interesting, and this is what markets running on pure policy have bred for years now.
* Any hedging I do does not come anywhere near full hedging due to a long-term gold position that just sits and sits and sits over the years/decades.
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