While it appears that the next and possibly final leg* of the inflation is underway, the US dollar and Gold/Silver ratio (our macro indicators that would guide the other way toward liquidity problems and possible deflation scare) have not given up, although the GSR has weakened appreciably of late.
USD (DXY) halted at target #1 back in September and has been dropping within its intact bottoming situation and 2021 uptrend since then. USD is probing important support that includes the up-trending SMA 50. It ain’t broke ’til it’s broke and so Uncle Buck continues on as a negative divergence to the inflated macro.
* It will be final if the 30yr yield Continuum, a guide to the inflation trades, holds at the monthly EMA 100 & 120 limiters that have contained it for decades. They are currently at 2.6% and 2.8%.
The Gold/Silver ratio has signaled a boost for the inflation trades lately, as it lost the SMA 50 and dropped fairly hard. Our theme is that if silver takes up leadership the inflation trades in commodities, resources, resource rich countries and reflation sensitive sectors could do very well. If not and if the GSR recovers, the party would likely end unceremoniously.
As yet, the GSR continues to look suspect. But let’s keep an eye on silver and its ratio to gold. A continued breakdown in the GSR would see more short-term benefit to commodities and inflation-sensitive areas. If silver stalls and starts to under-perform gold again that situation would change.
From the perspective of the Copper/Gold ratio, the situation remains cyclical inflation bullish, although that story is taking a hit this morning.
Not being a dyed in the wool inflationist (I leave those pompoms to others) I prefer to let the indicators guide. Another of those indicators is of course the 30yr bond yield Continuum monthly big picture chart. It tells me that we are targeting 2.6% to 2.8% on the 30yr yield. Here is the daily chart view, which is still in recovery mode, which means the monthly chart’s right side shoulder is in fine formation. This begs some patience with the process even as the USD tries to find support.