The 2 Horsemen of the (would-be) Apocalypse have been delayed, if not rescheduled.
Review: When the US dollar and Gold/Silver ratio (GSR) rise (ride) together the implication is market liquidity removal. This would be completely consistent with the “summer cool down” phase we anticipated and have managed.
If the riders hold serve and rise anew, let’s watch for liquidity stress. On the other hand, if they fail let’s be open to a new inflationary phase.
USD (DXY) reversed below the late March high. Had it broken through there high alert would have been signaled. It then failed the neckline, which was not a conclusive inverted H&S breakout, given the lack of a new high above March. Now USD fades to important support at the converged SMA 50 & SMA 200. It is still in potential bottom-making mode.
The Gold/Silver ratio is fading for a test of its own. The base breakout is still valid and this is an important test. Recall last year that the Silver/Gold ratio was an important early signaler of the inflation hysteria to come. Well, its mirror self, the Gold/Silver ratio could be an important signaler of the opposite if it holds and turns up. If it fails, the GSR ratio could again signal a renewed inflationary macro.
Bottom Line
The summer has featured a macro cool down. USD and GSR will go a long way toward giving us important market intelligence depending on what they do from here. If you are an inflationist and speculator, you want to see them break down. If you want deflationary punishment to ensue you want to see them hold and turn up again.
