• 770 days Will The ECB Continue To Hike Rates?
  • 770 days Forbes: Aramco Remains Largest Company In The Middle East
  • 772 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 1,172 days Could Crypto Overtake Traditional Investment?
  • 1,177 days Americans Still Quitting Jobs At Record Pace
  • 1,178 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 1,182 days Is The Dollar Too Strong?
  • 1,182 days Big Tech Disappoints Investors on Earnings Calls
  • 1,183 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 1,184 days China Is Quietly Trying To Distance Itself From Russia
  • 1,185 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 1,189 days Crypto Investors Won Big In 2021
  • 1,189 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 1,190 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 1,192 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 1,192 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 1,196 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 1,197 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 1,197 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 1,199 days Are NFTs About To Take Over Gaming?
Another Retail Giant Bites The Dust

Another Retail Giant Bites The Dust

Forever 21 filed for Chapter…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

Knocking on Deflation's Door

Since I began publishing my work last year, I have referenced various versions of the following chart - as rationale to why I follow silver and the silver:gold ratio so acutely.

SPX Silver:Gold Ratio
Larger Image

Broadly speaking, the ratio and the SPX have trended together since the initial banking crisis in 1990. However, since the US dollar index peaked on July 5th, 2001, both the ratio and the SPX have performed very closely. In essence, when a currency sensitive and "emotional" asset proxy such as silver outperforms gold - traders risk appetites are heightened within the system - which is then expressed broadly across risk classes.

Taking a broader macro perspective, and by removing the extremes of the ratio and expressing itself in a long-term moving average, one could argue that it has represented the great asset inflation (Irrational Exuberance) and reflations of the past two decades. I find this thesis strengthened by the rigid and conforming pattern of rising resistance and support.

Silver:Gold Ratio
Larger Image

Not surprisingly - and as displayed in the strong performance correlations of the first chart, the secular decline of the US dollar since 2001 has played a pivotal role in providing the motivational propellant in the precious metals complex. This intern has driven risk appetites higher, against the correlating backdrop of reoccurring monetary interventions over the past decade. It is also apparent - based on the strongly trending negative correlation today of the asset relationship, that should the dollar continue to strengthen, the deflationary threshold I delineated by the ratio's long-term moving average - will be breached.

This is why - in my opinion - Chairman Bernanke decided to embark on another round of monetary stimulus last month - despite the equity markets siting at recovery highs. The problem though appears to be that the dollar has made a secular low in 2011, inverting the variable in our monetary handlers reflationary equation.

US Dollar Index vs Silver:Gold Ratio 50 Month SMA
Larger Image

Should the dollar continue to strengthen, as recently expressed in the "spring" low comparative chart - assets such as silver and gold will continue to weaken.

Structure of a Spring Low
Larger Image

My work over the past five months in the commodity currency of the Australian dollar - also points to a shifting macro environment where the dollar reasserts dominance in the face of a declining commodity cycle.

Equity vs a Commodity Currency
Larger Image

Bernanke knows the specter of deflation is out there - in fact it appears to be knocking on the door.

 

Back to homepage

Leave a comment

Leave a comment