The US dollar bouncing is one thing. It has bounced to the anticipated resistance area.
But the state of the Gold/Silver ratio (GSR) in tandem with USD is quite another thing as it makes another poke at the area of the previous highs. Gold will do better than silver (probably decline less) going into a market liquidity problem.
This signaling does not mean a liquidity crisis is fomenting here and now. But there is a reason we watch the indicator, and that is because we have been on watch for such a situation on the larger macro picture. With the GSR perched this way my caution on an already risky market increases. If USD were doing its thing and GSR were not riding with it I’d have more confidence that this pullback across the markets would be something minor. If GSR and USD rise impulsively together, it’s the opposite. We’re not there yet, but this is what a gateway to such a situation would look like.
Nominal silver is poking below the preferred support level at the converged 50 and 200 day moving averages. It is not broken at a higher low, but given the aborted late December rally to a lower high, it does not look healthy on the short-term either. This obviously throws into question the measurement to 35, at least in the short-term. If silver loses the November low at 22.50 the play is likely cooked and the seasonal will not have been a good guide this year.
Bottom Line
The ultimate view for 2024 has been that an at risk broad market will decline amid increasing deflationary pressure and associated liquidity problems. The indicators have been signaling it all along… indicators like the 2yr yield divergence to the T-bill/Fed Funds, the yield curve steepening under disinflationary signaling and of course sentiment, which became deplorable in stocks and is moderately over done in precious metals – judging by the gold and silver CoT and the moderately overbought BPGDM.
The question has been ‘sooner… or later?’ for the liquidity problem, and USD is at what would be comfortable * resistance, but has another objective above at the SMA 200 (103.40). If the GSR gets more unruly to the upside increased caution – from an already cautious stance – is advised.
* “Comfortable” for the world of assets that are and have been anti-USD.
