The negative divergence (to USD) in the Gold/Silver ratio (GSR) we’ve been discussing lately is intensifying. And if it’s a negative divergence to USD, it’s a positive one for most everything else, globally. This is either a hard test of the daily uptrend or a preparation for failure (which would likely mean party time for many asset markets).
Below is Uncle Buck looking orderly in its pullback from the overbought high. Since we have been tracking a blow off to long-term (2000-2002) resistance on the USD big picture (monthly chart, ref. NFTRH 725). From the Currencies segment of #725:
When USD tops out we’d begin to look toward support around 103. Such a pullback could go along with a coming US/global market relief situation as speculated upon above (ref. the mid-term election cycle).
If the GSR holds its daily uptrend at or around this level then the 2 Horsemen of the liquidity Apocalypse could well ride on to resume the slaughter of asset markets.
But given the hard crack in the GSR and USD’s vulnerable long-term overbought situation I am paying attention here and now to the proceedings. In #725 we started a new potential bull thesis centering on the mid-term election cycle and severely over-bearish sentiment. While I’d prefer to have gotten into November to see the cycle develop (if applicable), I suppose it could start early in anticipation.
All that ‘what if’ stuff aside, in the here and now USD has dropped to the EMA 20 with its sights on 110 and very possibly the SMA 50 at 108.80. Ah, but what of the major target noted above at 103? Well, that is the area of the daily SMA 200 (106.60 and rising). Amazing.
The 38% Fib retrace level is at 105 and the 50% Fib is right there (102.17), meeting up with the monthly chart’s support at 103 and the SMA 200. Yup, amazing.
The 2 Horsemen are still intact, especially USD. But if the GSR breaks down we can go on watch for a bull thesis beginning in the precious metals and fanning out to a majority of everything else. If USD were to actually target 103 sooner rather than later the global macro trade could be quite powerful.
Just going by the indicators, folks. We’ve got Fed hawk fear on one side and contrary sentiment on the other. Best to look inside the markets at dynamics like the above. The relationship between Gold/Silver (the “metallic credit spread”) and USD has been clear to the upside. If GSR (a negative asset market liquidity signaler) breaks down the odds shift to a hard correction for USD (the traditional receiver of fleeing market liquidity).
With FOMC coming up again in less than a month and now 64% of CME traders predicting a .75% rate hike, the market would have to be flipping the bird to the Fed if USD were to take the big correction to 103. That would be the ultimate contrary sentiment event. But why don’t we do as we usually do and take info as it comes and refine it as we move forward. Otherwise we’re guessing or worse, waving bias like a pair of pom poms.