This morning the Silver/Gold ratio is ticking a new high. I have a shtick called the 3 Metallic Amigos, where Gold, Silver and Copper give different indications on the macro backdrop. Well, now we have 3 new Amigos as well and they would indicate positive, inflationary/reflationary macro if they go bullish.
They are the TSX-V (JX, CDNX), Copper and the Silver/Gold ratio (SGR). We’ve been updating the situations in the ‘V’ and copper a lot lately, but today let’s note a key move in the SGR.
SGR is ticking a slight new high to the June 2 high this morning and just as importantly, poking through the 200 day moving average. It’s important to remember that the longer trends continue to be down, much like that which copper is attempting to break now (it’s at 2.938 in pre-market). At the very least, we have speculated that a wave 5 in the SGR could test the upper bound of the long-term channel. If the break above the SMA 200 is real, that becomes the next objective.
The weekly chart adds a real humdinger of a wave 5 scenario, however. When silver lost major support in March and scared every last bug to death it was a sentiment event. An epic one. Now let’s think about equal and opposite reactions to previous actions. Equal and opposite sentiment to previous sentiment. An upside channel buster (to match the downside channel buster in March) is also in play.
I’ve added a new resistance objective with many previous touch points and if the SGR were to attack that level we’d probably see HUI at its 375 target (at least), silver at the 24-26 resistance area, gold at its 1940 target (at least) and inflation expectations finally making a decent move. We’d also likely see commodities make a catch-up move per the BDI/Gold/ACWX/CRB chart on page 20 of NFTRH 611.
While the signals in TSX-V, copper and increasingly, the Silver/Gold ratio imply inflation/reflation trades could strengthen rather than take a deflationary break, there will be limits. There always are in the age of Inflation onDemand, where economic weakening is chronic and market liquidations periodic as central banks fight these events ever more aggressively (MMT* is the weapon now).
But the upper limit of the SGR above implies cyclical bull markets in gold, gold stocks and silver itself. I have been conservatively planning out to 2021 for a reflation but this being a US election year with political desperation aplenty, why not now? That is what the SGR is asking us to think about. If it proceeds upward the inflationary/reflationary macro would just be a cycle and likely to fail in the months after the election. But we are at a crossroads right now and one of those roads could lead to a lot of profiteering before the play ends.
Silver/Gold is the 3rd Amigo. Let’s see if this morning’s signal holds up just as we did in May when the TSX-V/TSX ratio took out its SMA 200.
* MMT being Modern Monetary Theory or as I call it, TMM, Total Market Manipulation.