A solid performance by precious metals, despite silver's give back throughout the week. Our expectations with silver have been for a gradual turn higher. All things considered, it has filled that bill and pattern. Over the coming weeks we expect silver to take the pole position and lead spot prices higher in the precious metals complex.
For the time being, the miners are carrying upside momentum by sharply outperforming both gold and silver.
Worth noting is the rather muted performance by the U.S dollar index in contrast with gold's significant decline. This performance differential between assets was one of the reasons we began to suspect a weaker dollar over longer timeframes this past May. While gold essentially collapsed to and even beyond our expectations, the currency backdrop for the dollar and the euro were largely unchanged.
Over the last two weeks the U.S. dollar index has pivoted lower where we had expected it would. It continues to trade in a replicating and negatively divergent broadening pattern. For the past four months the dollar has essentially been loosing relative strength while treading water. The takeaway for us has been dollar strength will be sold until a material change in trend and positive momentum is displayed.
Buttressing these perspectives, you can see where the RUT:SPX ratio diverged from the historic comparative we have followed over the past few years with a strengthening dollar.
In the prior week, the RUT:SPX ratio exceeded its 2012 high. This is in contrast to the successively lower pivots the ratio had made during its previous cycle lower in the 1990's.
On longer timeframes as well, both the dollar and the SPX:RUT (inverse) now appear to be rolling over.
Considering the dollar index failed to take the exit ramp north as suggested in the 97' comparative, the prequel through the lower range in 94' and 95' may serve as more prescient guides going forward.
