Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold - Pro-Inflation? Anti-USD?

Commodities / Gold and Silver 2016 May 19, 2016 - 03:51 PM GMT

By: Gary_Tanashian

Commodities

This is the opening segment from the May 15 edition of Notes From the Rabbit Hole, NFTRH 395.  I am releasing it for public viewing because it seems, the title’s question has come roaring to the forefront this week.  So the information (including the charts) is slightly dated, but becoming intensely relevant as of now.

We anticipated an ‘inflation trade’ or Anti-USD asset market bounce and this has been going on since mid-February. That was when silver wrestled leadership from the first mover, gold (which bottomed in December and turned up in January), and a whole host of other global asset markets began to rise persistently.


So why again did the US stock market react negatively to good economic data on Friday?

Source: MarketWatch.com

 

Likely because it puts the Fed back in play in investors’ minds as new fears arise that inflation could become an issue that Policy Central will not ignore.

The yield curve has dropped further and there is no indication by this measure that a) the Fed is behind the curve on inflation or b) that imminent systemic risk is in play.

Nominal 2 year yields remain in an uptrend from 2013 and 10 year yields remain in a downtrend. That folks, is still an ongoing Goldilocks trend even though as we have noted for all of 2016, Goldilocks has been suspended while 2 year yields drop and inflation expectations rise.

Below is the 10yr Breakeven rate, which acts similar to the TIP-TLT ratio as an ‘inflation expectations’ gauge.

We have had a hard bounce off of an intense and unsustainable bout of deflationary fears. This bounce in inflation expectations has been a reaction to that. But here we note two things; the 10yrBIR is in a downtrend since 2013 and the bounce is in danger of dropping below levels we noted as resistance at around 1.6%, which is the current level.

Source: St. Louis Fed

 

In remaining aloft during this inflationary burst while the US dollar has declined, gold may have forfeited its right to rise with USD if it continues to bounce (as a result of inflation fears unwinding). Recall that there are times in certain macro conditions that gold and USD can rise or fall together. This is probably not one of those times.

Source: Market Realist

 

Referring to the chart on page 1 [1st chart above], most asset markets would drop if the USD bounce continues past the 94.50 area, which we have defined as a reasonable ‘bounce’ objective. In a way it seems silly mentioning the Fed and ‘policy tightening’ in the same segment, but we have always got to check our assumptions, especially where a seemingly confused, definitely confusing and probably manipulative policy entity is concerned.

So we continue to keep a close eye on the gold-silver ratio (GSR), which may have bottomed. It is no coincidence that both the GSR and USD have bounced together.

Bottom Line

A post at nftrh.com last Tuesday titled Inflationist Gold Bugs Have Driven the Rally made the point that if the GSR has bottomed then the US dollar may have put in something more than just a bounce (to 94.50 or so). It is time to watch gold vs. silver very closely.

What’s more, while the gold-silver ratio can and probably would rise if USD rises, gold is not a candidate to rise along with it at this time. That is because after leading most markets out of the deflationary phase to begin the new year gold has been an also ran among anti-USD items. So it would probably not decline as badly as many items if the buck firms further, but it would not be expected to remain bullish on the short-term.

Rest assured however, the point I have tried to make consistently is that such an environment would re-fuel the gold stock sector’s fundamentals, which have been somewhat compromised of late. Witness the first chart to the Precious Metals segment… [in which we take a good hard look at the sector with no cheer leading, only facts]…

Subscribe to NFTRH Premium for your 25-35 page weekly report, interim updates (including Key ETF charts) and NFTRH+ chart and trade ideas or the free eLetter for an introduction to our work. Or simply keep up to date with plenty of public content at NFTRH.com and Biiwii.com.

By Gary Tanashian

http://biiwii.com

© 2016 Copyright  Gary Tanashian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Gary Tanashian Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in