Before beginning, I’d like to remind subscribers – especially newer subscribers – that we successfully gauged the coming of the big phase of the precious metals and specialty or critical commodities rally in large part by managing the Silver/Gold ratio (SGR). Historically, it’s hard spike down was implied to be followed by a hard spike up, and it played out that way.
The preamble is because this is what I do. I look inside the markets for indications and implications. The sharp decline in the SGR implied a coming spike. The spike, in not breaking the weekly chart’s downtrend, implied risk. Risk that got realized in mid-late October.
The preamble is also because I have another one for you, the 10yr-2yr yield curve. In NFTRH 886 we noted that any near-term decline (flattening) in the curve could be interpreted as a happy but temporary “Goldilocks” situation, which could see the markets cheer on through year-end.
We also noted that it could be in a process of morphing from what began as an inflationary steepener to a deflationary one. This happened back in 2008. The curve would grind or flatten before reasserting a steepener (this time under deflationary pressure).
Today the curve looks like it could well top out and start to flatten. Normally, that would be anti-gold, but pro-stocks. Goldilocks… inflation not too hot or too cold. Just right!
The other part of our plan (remember this is all speculation from a guy who looks inside and underneath markets for clues, so it is all theoretical, as was the Silver/Gold ratio analysis) is that whenever peak euphoria registers and the dumb money is all sucked in, we could have an epic bear move.
If it happens, it could take time. It has been taking time since I began gauging the coming of a bear market. Like, a lot of time, considering the Biden b/s stimulus during pre-election 2024 and the Trump wax off/wax on big mouth routine. That despite certain macro indicators that were calling “bear market” over a year ago. Patience.
Bottom Line
It’s all bullish out there. And with inflation fears easing and the Fed likely to go further dovish, it’s all good! No, it’s not. Stock prices are good. Stock owners, home owners and other asset owners are good. But we are looking ahead.
A curve flattening could see gold weaken further, perhaps after a recovery bounce, and stocks continue to party into or through the holidays, into 2026.
But I don’t think we are on a grand new boom phase that would run with an extended curve flattener. I think the odds are that a temporary topping of the steepener, now morphing disinflationary, could eventually develop deflationary pressures.
With this analysis we are looking out months ahead. So please don’t react in real time. I tend to look ahead, and that is exactly what I am doing. There is certainly no assurance that this road map will play out. But I prefer to have maps, open to revisions as needed, than to be flying blind.
