Everything has its limit -- iron ore cannot be educated into gold.
-- Mark Twain
Gold and silver have been on a tear since late June following dovish Bernanke comments, with an acceleration taking place in August. I was quite bullish on precious metals, calling for a gold melt-up on August 2
. Gold performed well, but silver had the most oomph as it strongly outperformed.
Silver is often referred to as the "poor man's gold" and tends to be more volatile than the yellow metal, with it directionally correlated to gold's trend. When silver outperforms gold, that tends to coincide with bullish hopes on industrial output on the global front. So strength should come as no surprise, given better-than-expected China data and a re-evaluation of the emerging market (NYSEARCA:EEM) “crisis,” which is anything but. Recent price action has been a bit choppy, so it is worth asking: Is the silver and gold melt-up over?
Take a look below at the price ratio of the iShares Silver Trust ETF
(NYSEARCA:SLV) relative to the SPDR Gold Trust ETF
(NYSEARCA:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
Note that the ratio appears to be sidelining a bit here into the taper despite some very significant and recent excitement over emerging markets (the "next fat pitch"). The trend still looks favorable, and I suspect that directionally gold's up move will only really be over if silver badly underperforms and the recent emerging market strength was a headfake. So while the pace of the advance in precious metals may subside, bets on a return to negative real rates may continue, given the steepness of the yield curve and a still dovish central bank. We may see gold and Treasuries correlate in the weeks ahead as both get a bid. For the melt-up camp, you have logic on your side.
No positions in stocks mentioned.
This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.