While many signals are up in the air, a couple of them that we have shown to be early indicators of inflation and associated trades continue to plow upward.
The nominal TSX-V (CDNX) continues its massive counter trend bounce. The longer this keeps up, the better the chances that the index can change its major trend, which is down.
Of more importance to future ‘inflation trade’ signaling, the CDNX/TSX ratio is reaffirming the bullish move we noted on the day it broke above the 200 day moving average in early May. This is the ratio that we have shown to have a positive long-term correlation to the CRB index. So what is this telling us, real or Memorex?
All I can say is that the longer the ratio persists northward, the better the chances of a future significant commodity rally. With commodities’ lame bounce so far however, we cannot rule out another drop first because this ratio is getting very extended.
Meanwhile, silver has created support at 17.45 and 17 (SMA 200). The next resistance is noted.
Silver, having more inflationary and cyclical uses than gold is key in its relationship to gold. It is either approaching a caution point to a reflationary outlook (yellow box) or an eventual liberation point. I think it will be a good idea to have caution first, and speculative urges second. But a new inflation trade would have to start somewhere and both of these indicators, CDNX/TSX and Silver/Gold, are doing what they need to do so far. But Silver/Gold, like CDNX/TSX, is extended.
My gut says that any transition to inflationary is going to include volatility. Risk is high to the inflation trades, short-term even as the indicators seem to be making the first impulsive moves in that direction. It may be late 2020 or into 2021 before the thing really gets going (assuming the future inflation view is correct).