Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Critical Juncture for Silver and Gold


With the latest iteration of QE, the big question now is if precious metals believe it will work. For silver, the answer appears to be yes.

Life is always at some turning point.
--Irwin Edman

With the Fed's latest iteration of QE, the question many are asking is whether risk assets continue their bullish move or if the market will once again shrug as it did following QE3. An an interpreter of price, the question is best answered through relative movement, and by considering what the Fed wants – nominal growth. What that means is that the Fed wants some combination of actual inflation and actual growth to push the economy into escape velocity mode. Of course, just because the Fed wants it does not mean it will happen, but that seems to be the goal of monetary policy now.

So does price think it's going to work? It seems plausible, particularly when considering the relative behavior underway in markets. Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust Shares (NYSE:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.

Silver is often referred to as "poor man's gold," but the truth is it is an imperfect substitute for the yellow metal. Silver tends to be much more sensitive to industrial demand, while gold is less so on a relative basis. As such, when silver outperforms gold, it means money is starting to bet on an increase in industrial production and global reflation. Note that the ratio rallied in January and February during the best first quarter for equities in a decade, underperformed throughout the corrective period of April-May, bottomed in early June as the melt-up began, and has since fought higher.

The ratio now is at a critical juncture given that it has crossed its own 20-day moving average, but is still within what appears to be an uptrend of leadership. If a breakout in silver's strength occurs, it might mean that further risk-sentiment is likely in markets, which is likely to make gold rally, but not to the same extent as silver and other more industrial-sensitive commodity plays.

Twitter: @pensionpartners
< Previous
  • 1
Next >
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.

Featured Videos