Gold vs. Commodities, a Bearish Divergence

It is as simple as this; you measure a counter-cyclical thing vs. a cyclical thing and voila, you have a market indicator.  No single indicator is the be all, end all.  But when several of them are used in concert, with consistency, you can build strong probabilities in order to make your plans.

Counter-cyclical gold had declined sharply in relation to commodities as everybody got hysterical about towers, walls and bridges to be built as America seemingly got great again, overnight.  The indicator was driven sharply lower, right to a notable support area, which we have been following each week in NFTRH.  As long as this support area holds, the prospect that the market jumped the gun on America’s return to greatness remains in play.  Not only did support hold in December, but the ratio jumped in January and is positive again this month.

gold vs. crb

It seems almost too perfect a contrarian setup against what most market participants seem to expect right now.  If Au-CRB fails and loses support, we go full inflationary growth.  But if the ratio continues to rise after holding support, the clock is ticking and a lot of people who believe the headlines are gonna get hammered in 2017.  That’s the message of this indicator.

Personally, I am very slowly leaking out of the market, taking profits and rebalancing.  My general plan is to be patient, realize these turns do not happen overnight or per the timing our hyper kinetic brains may envision.  But I’d like to be heavy in cash and sitting patiently when the turn comes.  As the case builds, I’d have no problem getting short (with the gold sector one of the few longs) the market for a correction against the view of a “business friendly” presidential admin.

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