NFTRH; Gold/Silver Ratio, Copper & USD

And here comes the volatility as gold firms and has likely made a bottom vs. silver. In NFTRH 613 we showed the Silver/Gold ratio at a limit point (or a gateway), indicating high risk for the reflation trades. Let’s flip it over and take a look at the Gold/Silver ratio from a long-term view. Support has held and I think it is best to be erring on the side of gold vs. silver now. The reflation bulls have had their relief rally.

The negative hysteria of the March disaster has been met with equal levels of greed since then.

Copper also pushed limits, but stopped at the round number and key resistance at 3.

USD is hysterically oversold on the daily chart. If the Gold/Silver ratio rises and reflation commodities like copper fall we can expect a snap back in the US dollar. Yesterday the Fed put the screws to it as everyone knew they would, but one of our themes was a ‘sell the news’ situation. And this morning the machines are on that theme. If USD rallies amid short covering and the macro takes a correction, we’d likely target the 96 area per the resistance shown here.

Bottom Line

  • Risk is and has been high in silver vs. gold. This morning’s ‘sell the news’ pre-market signaling is backing that up.
  • Copper is still aloft, but has pulled back from important resistance. So it, like the Silver/Gold ratio never did flip the macro to longer-term inflationary/reflationary.
  • The USD deserves to be bearish as it has had its fundamentals attacked every step of the way by the Fed and the administration. But what have we said could drive a rally? What is the only thing Uncle Buck has left? A liquidity crisis. What is a rising Gold/Silver ratio indicative of? Liquidity constraint.

I have raised cash and added shorts against the Materials sector (XLB), Copper miners (COPX) and the Euro (long EUO). Based on what I see post-Fed, it feels like an opportune time to prepare for the party to end or at least for an interruption of the party. It’s been too easy for too long for formerly terrified, now complacent market participants.

I will plan to raise already high cash levels even higher and/or short on opportunity, especially against commodities and resources sectors. But really, the general stance is to be wary of anything that is and has been anti-USD.

As for the gold sector, it can get hit as inflationist bugs start to sell. I want to make sure I know what I am holding and why I am holding it, and prepare to buy if the sector gets corrected while its fundamentals improve. That fundamental improvement would be indicated by the rising Gold/Silver ratio because as gold rises vs. silver it’ll be rising vs. mining cost commodities as well. While not directly related, if gold continues this rise vs. stocks so much the better.