alice

NFTRH Update; Gold, Silver & Miners on FOMC Day

Gold made a perfect test of the SMA 50 (blue).  In rising to 1220 in January it has now formed resistance at that point.  If it can break through and hold above 1220, the objective would be the SMA 200 (red) up to 1310 or so.

gold

Silver is the one that is interesting.  Yesterday it made a break above the key resistance we have been noting at 17.25.  This also took it out of a downtrend channel.

silver

GDX has long-since broken its channel and has held the short-term EMA 10 (purple dotted).  We have been noting the miners’ positive divergence to the metals and now silver appears to be getting the memo, with gold constructive.

gdx

The silver miners are very similar to the gold miners.

sil

So what does it all mean?

Well, first and foremost, it is FOMC day.  The FOMC futures market expects no move today and maybe that will be the case (though I have my doubts).  I do expect the talk to lean hawkish.  But the precious metals markets are likely accounting for that.

With silver leading gold lately, the implication is that an inflationary environment is still slowly creeping into view and with a presidential administration planning to induce economic growth through inflationary fiscal policy, I’d expect the Fed to be acting as a regulator.  The precious metals should be a good gauge on whether or not the market perceives the Fed to be behind the curve, both figuratively and literally.

A bullish silver-gold ratio would be beneficial to the precious metals, but also to commodities, global asset markets and the inflation view.  Right now, it is constructive but has not yet made a move.

sgr

Here is the 10yr-2yr yield curve.  It is still elevated and constructive for both an inflationary environment and the precious metals.

yc2yr

Here is the IEF-TLT ratio (using this instead of TIP-TLT because in checking TIP’s holdings its bond maturities held average closer to IEF’s 7-10 year maturities than TLT’s 20+ year).  The implication is that inflation expectations continue to rise.

tip-ief

From an inflation signaling standpoint, the Fed has enough ammo to talk firm on rates even though economic signals have been mixed of late.  I do believe they will factor in the differences between an administration that virtually depended upon the Fed’s inflationary monetary policy vs. Trump’s forthcoming fiscal policy.

Now, will gold and silver even care about a tough Fed?  Right now all we can say is that the miners have been positively diverging for some time now and silver is on a fledgling break above short-term resistance.  The change to a polar opposite administration has put a spanner in the works and things are not linear or symmetrical.  As an example, who can quantify how far behind the inflation curve we actually are, given all that monetary policy from 2008 to 2016 and what is coming in 2017 and beyond, fiscally?  Nobody.

What’s more, who can predict when the taking back of easy money policy will begin to wear at asset markets and create the next deflationary liquidation?  Nobody.  Today the Fed will likely continue to act like it is in cool control of the situation.  In the coming days markets will either cheer or boo.  Gold and silver will either confirm the fledgling moves noted above or fail.  But as it stands right now, backing out all of the noise, silver is joining the gold and silver miners in positive divergence to gold and that is generally a positive for the sector.

It will be interesting to see how it all shakes out post-FOMC and into next week.