SD Friday Wrap: Three months into 2018 and the glass is half full. Here’s why…
The gold to silver ratio got over 83 recently:
This means that it takes over 83 ounces of silver to buy one single ounce of gold.
Notice July 2016 when the ratio was at 64. A ratio of 64 today would put silver at a price over $20. But we can only work with what the cartel has smashed to, and they have smashed silver to an extreme.
Beaten to a bloody pulp.
Yet the ratio is signaling that it really is the arbitrage play of the year developing.
Besides, silver is down 4% on the year so far:
That’s not even a “correction”. Corrections are down 10%. Bear markets are down 20%. But 4%? That is a healthy pullback. Sure, it sucks having to move through this daily grind lower over time, but it’s just affording new stackers the time they need to get on board.
Welcome aboard new stackers.
On the weekly, we can still see that nothing has changed with the big picture:
After bottoming in December, 2015, and having a nice run to $21 come July of 2016, silver has been in a protracted pullback. But we’re up in the big picture, and over the last year on the weekly, we still have a series of three higher lows on the chart.
It’s slow and agonizing, but its still progress.
Comparing silver to gold, we can see silver’s under-performance clearly:
Gold is up nearly 2% on the year where silver is down. The divergence between the two original monies is pretty much as extreme as it’s going to get.
Because irregardless of price, the arbitration plan on the GSR is real. If gold and silver diverge even more, you could see some big money step in and make it happen, because whether the cartel likes it or wants it or not, the two metals will get back in balance at some point.
On the weekly, we can see that gold has held up relatively well:
Gold is the stability to silver’s extremes. That is to say, when they are moving down, silver overshoots the move to the downside, and when they are moving up, silver overshoots the move to the upside. So what we have is a wall of worry on the weekly, but once the mainstream realizes that the yellow metal is indeed moving higher, silver will begin to catch up to gold in terms of price performance.
There really is no denying it. Just compare gold to the stock market:
Sure, gold hasn’t necessarily busted the gates and taken out the critical $1370s, but comparatively speaking, gold is doing just fine.
Paper assets, on the other hand, are struggling.
In fact, the SP 500 might even lose its support of the 200-day moving average here soon:
We rallied hard off of the 200-day yesterday, but if we fall below the average, we will have painted a very bearish lower-low on that chart.
Interestingly, as the stock market rallied yesterday, so did bonds:
On Tuesday we fell below the sideways channel of 2.8% to 2.9%.
Is the drop in the bond market (rise in interest rates) over?
Time will tell. Especially if the stock market keeps dropping an the Fed changes course by cutting interest rates and implementing QE4. On the other hand, if the Fed keeps to its tightening and rate hike schedules, we should see yield picking up again.
One thing is for sure, however – This has been a very interesting quarter. No lack of nail biting. Sure, in gold & silver it has been painfully agonizing, but in the bond market, the stock market, the cryptos, etc, there have been wild swings galore.
For now those swings look to be forming part of the new normal:
Yesterday the VIX managed to close below 20, but notice we haven’t gone back down to 10 either.
Monday is a brand new quarter and the fireworks could just as well resume in earnest with rotations and new positions in the markets.
Back to the commodities, we see the picture is still mixed.
Copper is having the darnedest of times but looks like it could be turning up again:
The way copper has moved over the last year, rather erratically, we could be break-out above both the 200-day and the 50-day as early as next week. The technicals, albeit slowly and not yet confirmed, are shaping up to turn bullish.
Crude, on the other hand, is up on the quarter:
If crude is ready for another leg-up after consolidating for a week and a half, then the chart will be painted rather bullish. Granted, we’ll all be paying more for everything as the world runs on the price of energy, but we’ll jump that hurdle when we get to it.
For now, I wouldn’t be surprised if we take out $70 in the second quarter.
On Wednesday I gave palladium a pat on the back and said, “good job”:
While we’re right under support of $950, we still could see if it holds or not. If support doesn’t hold at $950, then we would look to support next at $900.
But here’s the thing: If gold and silver are turning the corner and starting their next move higher, we would expect palladium to do the same, so while it looks pretty bearish on the charts right now, that could turn around rather quickly.
Platinum also looks bearish on the chart:
Yet what is true for palladium is also true for platinum. Things look dire, but if we are going to see the next move higher in gold and silver, we would begin seeing the next move higher in platinum as well.
But there is nothing more dire than the price of digital nothing:
The low print was somewhere around $6600.
So what is the bottom line:
- Stock, bond and crypto markets all down on the quarter
- Gold is up on the quarter
- The gold-to-silver ratio is set-up for what could be the arbitrage of the year
- Crude oil is up and confirming that the inflation story is real
And we can all get an ounce of fine silver, in hand, for less than $17 bucks.
– Half Dollar
About the Author
U.S. Army Iraq War Combat Veteran Paul “Half Dollar” Eberhart has an AS in Information Systems and Security from Western Technical College and a BA in Spanish from The University of North Carolina at Chapel Hill. Paul dived into gold & silver in 2009 as a natural progression from the prepper community. He is self-studied in the field of economics, an active amateur trader, and a Silver Bug at heart.