SD Friday Wrap: It’s been a brutal week for the metals. Here’s a look at the damage…
First let’s start off with the good news, if we can call it that.
The gold-to-silver ratio is still showing the potential for arbitrage:
Notice the GSR is a little different than I normally print it out. This time, I printed the weekly. The point I wanted to show is that as silver bottomed in December of 2015, the GSR increased for several months as investors came into gold before they came into silver.
It can be thought of this way: The smart money moves first.
The smart money is also big money, and it stands to reason that the initial flight to quality, that is to say, the need for a safe haven asset, a hedge against uncertainty, takes place into gold first.
So its possible that the gold to silver ratio extends even further as the prices of gold & silver rise, but my gosh. It’s already nearly as extended as it was when the metals came out of their bottom.
Could the ratio get back up to 85? It absolutely could.
What about 90?
The higher it goes, the more people will switch their buying habits, so there is a limit, we just don’t know what that limit is just yet.
Silver has just been beaten down so much that silver might just move first this time around.
After all, gold is still up year-to-date:
However, the daily chart above shows just how critical this particular point in time actually is.
As you can see, any time over the last year when gold has broken down below the 50-day moving average (blue line) intra-day, we’ve felt the brunt of a long, drawn out whack job on price.
We really want gold to stay above the blue line. We don’t even want gold to tap it.
The problem is, gold is not screaming “oversold” at all.
Silver looks terrible right now:
As you can see above, silver is now down about 5% on the year. The technicals have flat-lined on the weekly.
The daily doesn’t look much better:
Worse still, silver has a little more room to run before screaming “oversold” on the Relative Strength Index (RSI).
If silver can’t hold $16, we could be looking at $15.50 before all is said and done.
Palladium shows us what “oversold” looks like on the RSI:
When considering the oversold reading on the RSI, support should hold at $950, however, if gold & silver continue their “pull backs”, palladium could become even more oversold than it already is.
I put “pull backs” in quotes because we know the price action in gold & silver is not natural. It’s what we call precious metals price suppression.
Platinum is dealing with its own carnage:
Not helping is the fact that it has not tested support at the 50-day, and the technicals show that platinum could still sell off before rallying.
Crude oil is now under $60:
Crude is not showing imminent collapse, however. Its literally performing just as it has over the past year.
Copper has fallen for the last three weeks:
The commodities in general are down across the board.
Here’s the thing: If the stock market keeps falling, sooner or later there will be a move to the only true safe havens of gold and silver.
Uncertainty is nowhere near where it was for the better part of 2017.
To highlight just how much volatility has had an effect on the charts, check out the VIX through the end of January:
The auto-scaling is in a range of 8 to 17 with general choppiness between 10 and 12 nad occasional spikes up to 16.
But all of that changed come February, and the chart, when scaled for the moves of this week, is hardly recognizable:
If that’s a “bull pennant” that’s forming on the VIX daily chart, that’s more bad news for the stock market.
Treasury yields have been consolidating above 2.8%:
The stock market and the yield on the 10-year are engaged in a negative feedback look.
It goes like this: Yields rise, which causes the stock market drop, which causes investors to seek the “safety” of bonds, which causes yields to drop, which causes the stock market to rise as risk assets become more attractive, which causes people to sell their “safe haven” bonds to pursue those risk assets, which causes yields to rise, which causes the stock market to drop.
How long can this go on?
Until something really crashes, or more likely, until both the bond market and the stock market crash together.
The problem is that all markets are manipulated all the time, and so it is extremely difficult to know where the natural prices of anything should be. We know the generalities – gold & silver much higher, stock market much lower, etc, but we don’t know the exact levels. Suffice to say for the stock market that since there was not a full wash-out of the stock market permitted as the central banks around the world stepped in and printed money, a printing press that still is in full swing to this day (ECB, BOJ), that the natural price is even lower than the March 2009 bottom. Gold & silver? “Much higher” is putting it lightly. More like many multiples higher.
The dollar bounce looks to be running out of steam:
And with a budget busting government who just cut taxes and lifted the cap on military spending, its hard to see how the dollar could continue strengthening from here.
Finally, there’s not enough sugar to coat the stock market and mask the taste of central bank putridity:
Hard to tell which way it’s going. Seems like there are dueling forces trying to take control of the markets.
For example, today, at one point the Dow was down over 500 points, but come the close and its up over 330!
The miners are literally getting their butts kicked:
The cartel is walking a very, very fine line.
– Half Dollar