This ain’t the garden of Eden
There ain’t no angels above
And things ain’t what they used to be
And this ain’t the summer of love
Lock all your doors from the outside
The key will dangle by the inside
You may begin to understand
That this is the night we ride
And so they ride. Before COVID-19 USD and the Gold/Silver ratio had been moderate to gently easing during the Q4 2019 ‘inflation trade’ bounce and then with the widespread appearance of trouble and the ramping up of dollar-compromising US policy came a decline in the buck. Ah, but its fellow rider had been diverging before they finally saddled up together per this March 12 post.
Back on February 28 we only saw 1 horseman riding. Now there are two and the liquidity destruction is on as policy thus far fails to have any level of efficacy in calming peoples’ (and machines’) nerves (algos). As unpleasant as it is (and speaking personally, I have a pit in my stomach) this is as it should be during a liquidity contraction.
It’s another of those things you write about when it is not in effect, get ignored by about 98% of casino patrons out there and it happens and you’re as uncomfortable about it as the next patron. Yeah, become a market analyst/writer, it’s so much fun!
The Coronavirus scare is global and pervasive but it does not scare me. Some of us will die and most of us will live on. But speaking as someone who had expected a market top and economic deceleration I can only imagine the terror felt by those who had been blissfully going about their lives as their all star financial adviser compounded their gains month after robo-bull month. The Bernanke gift that just kept on giving to set-it-and-forget-it stock market investors.
Until it stopped giving and started taking. They, the 2 riders, are taking not only money but souls too because if your soul was so uncritical as to think the ginned up asset market excess was born of something real then that soul was ripe for the taking.
They may take a little bit of my money as I try to slowly position, but my soul is intact.
So anyway, I am not afraid of Coronavirus but I my gut is really feeling the liquidity (short-term) and economic (longer-term) implications of it. It’s flat out scary. So was Armageddon ’08, the last great liquidity contraction during which they also rode (as gold declined but way less than everything else not named Uncle Buck or T-bonds). This is a massive short-squeeze style rush to dollars, to liquidity in response to a world that is in lock down. Scary.
As this has gone on, silver, the cross dresser metal between industrial (cyclical) and monetary (like gold) has been crushed. The technical implication on this monthly chart is that as long as silver dwells conspicuously below 14 it is vulnerable to a test of the low 8s. It’s just the way it is and it is freaking silver and gold bugs out. But that is actually a prerequisite of the play, if the sector is ever to succeed. Silver’s destruction represents the destruction of the inflationists as the inflation bugs are dismissed.
And the freak out is with good reason. The chart is the chart and until it puts a long tail on that monthly candle and gets back above 14 it would target the 8s as there is no support between here and there. This morning may just be another little tease to a bullish and/or inflationary stance but, there’s this…
Gold is negative and silver is positive. Meanwhile the US dollar is screaming upward as it takes in masses of liquidity refugees (man and machine). It’s probably just a little hopeful reaction to the recent clubbing in silver and commodities but at some point if we are not going full frontal global economic destruction and a final deflation to end a crooked (another word for Keynesian debt leveraging for inflation) system, silver would eventually take over from gold. That would be the trigger. That would be the hope.
So amid the destruction a glimmer of hope (above). Of course, hope is not a strategy. A deflation scare was never going to be easy or quick. In Q4 2008 it felt like forever and a day. Man and machine are scrambling for US dollars right now, which is why US citizens should be holding them already. A lot of them. Gold would be an important consideration for US and global citizens along with whatever claims to USD the latter may utilize. But that epic Gold/Silver ratio above (currently x125) is either unsustainable or this really is the final liquidity event. Armageddon.
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