It is only pre-market, but the Silver/Gold ratio, which we have noted never did change its major trend to up, weakened again yesterday and could break down on its daily chart today if pre-market is a good indication. Here is the ratio at yesterday’s close, testing the SMA 200 after dropping below the SMA 50.
This morning with gold -.42% and silver -1.48% the ratio appears set to drop again, absent any intervening rally pre-open.
While Treasury yields are up again, to keep a Q4 inflationary view in play we’d also want silver to out-perform gold (even if they are both weak), TIPs ratios to continue bouncing and those bounces and constructive daily charts in commodities, resources, emerging markets, etc. to continue beyond the “bounce” category.
A breakdown in the Silver/Gold ratio, if it happens, would not be consistent with that. The original plan was for a difficult Q4 and then a likely inflationary episode in the first half of 2020. If the Silver/Gold ratio breaks down (or put another way, fails to exit its major downtrend), short-term caution would be signaled across many macro markets, including in the very short-term, the precious metals.
We need to stay consistent. If we are going to live by an indicator or group of indicators when they are positive then we also need to respect them if they go negative. Let’s see what this one does today.