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Who's On First?

Remember that clever skit Abbott and Costello first performed back in 1940, I still get a kick out of it whenever I think about it. Here's another one you may remember, which is centered on the word 'assume'. In the routine, Lou goes on to show the world that sometimes when you 'assume', you can make an 'ass' out of 'u' and 'me'. Is that what is happening currently in the precious metals complex, where nervous investors are assuming because we have had a great run over the past three years, the end of the road must be near. There certainly seems to be a lot of participants betting that way of late, which has been a boon to those who remain invested because of the 'wall of worry' this condition creates. All bull markets are nurtured under these conditions, and I see no reason to doubt the metals will be any different.

The 'Who's On First' routine was the one that kicked things off for Abbott and Costello in their first movie One Night in the Tropics, some 63 years ago now. And like their career(s), which spanned two decades afterward, the precious metals (PM's) bull market is destined to do the same, where we are in all likelihood only rounding the corner at 'first base', after hitting a home run for those who invested three years back. That's certainly the message commodities are signaling currently, with some rather stellar performances in the broader metals group painting some very nice pictures of late. (See Figure 1)

Figure 1

As you can see below, copper, which is an industrial metal, makes the energizer bunny look like he is standing still, vexing ever higher in what appears to be a sea of liquidity. Many are attributing the dramatic rise in silver this year as a function of its industrial uses, and has nothing to do with more traditional currency related considerations. Regarding this unfounded episode of 'assuming', all I can say is, you never can tell when you are making an ass out yourself if you are ill-informed, which is the condition amongst these thinkers at present, in my opinion. (See Figure 2)

Figure 2


If silver is simply a commodity, then one has to question the motivation of behind its historically high short position currently, primarily held by commercial banks, who for some reason, do not want true market forces to be expressed, while holding no such reservations associated with coppers rise against the box. (See Figure 3)

Figure 3


Are market forces about to overwhelm the banks now however, with silver stepping up to the batters box to take over where copper may be leaving off for a period? Well, if silver can muster just a bit more strength against commodities as a whole, we might be in for some real fireworks soon, which could even knock it out of the park. (See Figure 4)

Figure 4


And who knows, maybe even the 'barbarous relic', gold, will be able to push out of it's decade long consolidation against the box. That would really shock some people. (See Figure 5)

Figure 5


Are there any clues out there, capable of reassuring investors there is a reasonable probability PM price action, both in terms of scale and direction (i.e. not against the currency box), are capable of moving higher on an absolute basis presently? I think so, not the least of which is the technical picture in oil currently, where we may have yet another batter set to step up to the plate. (See Figure 6)

Figure 6


The basic underlying assumption a PM bull must make here, is that in spite of continued volatility in the currency markets, and where up until now, PM's have been trading primarily as a currency alternative via a defined ratio relationship, they will begin to act more independently, trading on supply / demand fundamentals. This task should not be difficult for those aware of what is going on behind the dollar scene, where the Fed has little reservation applying some oil to the machinery whenever it slows down, by creating copious amounts of digital currency, which likes to find opportunities with strong fundamental underpinnings and a bunch of ill-informed speculators on the wrong side of the trade. Perhaps that is why this next set of charts look so bullish, with a look at oil against the box seemingly appropriate at this time. (See Figure 7)

Figure 7


And while it could go either way in the short-term, the fundamentals behind oil are bullish on an indefinite basis, with no more major finds to be had, increasing demand, and a money supply machine feeding the pricing mechanism. Indeed as long as oil prices remain only buoyant, the following charts can't help but warm the cockles of a gold bugs heart, with significant relationship shifts and trend changes underway. Here's a peek at gold against oil first, which appears to be bullishly predisposed at the moment. (See Figure 8)

Figure 8


And if the trend is your friend, which it generally is, then a break out of this bottoming formation on the part of silver against oil will not hurt matters for the bullish case going forward, as the last time I checked, and although more testing of the true trend may be required, both commodities are in up-trends. (See Figure 9)

Figure 9


To wrap things up, and bring us full circle, since we started with a look at copper, along with the fact metals like to run together generally, with industrial metals characteristically taking the lead, here is a view of silver against copper, which suggests it has a lot of work to do in the future. From a technical perspective, we could start this process very soon. (See Figure 10)

Figure 10


There you have it, some thoughts and pictures on how gold and silver are shaping up against commodities, and more specifically, the groups leading them to a shinning performance sometime in the not too distant future. While nobody knows for sure how long it will take for PM's to fully express themselves in the big picture, one thing is certain, the process has begun, and it is progressing both in scope and magnitude as it matures.

And just like recent price action in some of their counterparts, where unexpected moves seemingly come out of nowhere, but appear larger than life for those concerned when they arrive, gold and silver will one day do the same, with increasing intensity and positive momentum befitting the fundamental backdrop. So while one should never be expecting a 'home run' to pop up out of the blue, careful study and ardent planning of your portfolio will pay divides for those who are aiming at rounding all the bases in the full measure of time.

The only things you have to do are 'hold gold' and 'stow silver' to be there on those days when it will all seem so blatantly obvious why, and I can assure you, those days will come at some point.

So, to answer the question "who's on first?" my reply is you are, if you are a precious metals investor, where you have participated in the top performing sector of the market over the past three years, and are likely to reap the benefits of this wise decision well into the future.

Good investing all.

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