-- Billie Holiday
Silver is often called "poor man's gold," given its comparatively cheaper price tag, as well as its behavior as a precious metal that moves not only on wealth preservation, but also as an industrial commodity. Generally, silver moves trendwise with gold, and in many ways can act as a leveraged way to trade precious metals. From the standpoint of intermarket analysis, the silver-to-gold ratio is particularly interesting. When bets on global growth and reflation are rising, silver tends to outperform gold; when fear is creeping in, gold tends to outperform silver.
This certainly has turned out to be the case with Ukraine-Russia tensions. Combined with global growth concerns and yields in the bond market dropping, it makes sense to see gold perform comparatively better. This may be about to change however. Take a look below at the price ratio of the iShares Silver Trust ETF (NYSEARCA:SLV) relative to the SPDR Gold Trust (NYSEARCA:GLD). As a reminder, a rising price ratio means the numerator/SLV is outperforming (up more/down less) the denominator/GLD.
The ratio appears to be bouncing right off of support, and while the trend remains down, silver's price action may be indicative of global growth bets and another resurgence in emerging markets (EEM) to come. In particular, if silver ends up leading sustainably, the real place to make a bet might actually be the iShares FTSE/Xinhua China 25 Index (NYSEARCA:FXI). With slowdown concerns persisting, silver (and copper) might move ahead of any new stimulus measures the government takes, in turn providing a boost to the equity side.
This movement seems to be somewhat justified given the behavior of Treasury inflation-protected securities (TIPS) as well. Take a look at how the iShares Barclays TIPS Bond Fund ETF (NYSEARCA:TIP) is behaving relative to the PIMCO 7-15 Year Treasury Index Fund (NYSEARCA:TENZ). Note the surge in buying as of late off of a long period of basing.
For the ATAC (Accelerated Time and Capital) models my firm uses in managing mutual funds and separate accounts, I remain defensive, but odds are growing of moving up the risk scale with the right setup. This is a strange juncture in many ways, given a mix of expansionary and contractionary signals happening at once within the marketplace. I suspect that Russia is only one part of this. High-beta momentum names breaking down as they did about a month back did ruin many technical patterns, while large caps keep holding on. If silver relative to gold rallies at the same time defensive sectors weaken, that may be the right environment for another leg higher. Should support hold there, we may see further improvement in risk sentiment more broadly in the weeks ahead.
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.
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