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Orthodox religion is not what it used
to be in our society, a society where individuals are now taught to worship
the self and wealth above all else. Respect for your fellow man is
increasingly becoming a scarce commodity these days with this departure from
traditional morals, the morals our fathers built what is suppose to be the
most advanced ever. So the irony this thick in this regard as our society's
traditional moralities continue to fade, where at some point this process
must be halted at the risk of such self destruction that our very survival
would come into question.
Unfortunately however, because this
lack of morality has now completely infected our money as well, as measured
by a runaway fiat currency
system, a system that because of abuses by it's
beneficiaries, is now producing dangerous price increases in vital
commodities throughout the world, which is threatening continued peaceful
human intercourse within periphery economies
now, and developed countries
later. Of course it might not be much later if this is really crunch time,
where rising energy prices are going to put a permanent crimp in people's
lifestyles almost immediately, which will be exacerbated by falling asset prices
at some point, with the only question being when. You will remember the
timing thing was the central topic of our last discussion,
where we continue to watch for a true sentiment change with bated breath.
Again, most think a fall in the stock market is coming soon, which could turn
our to
be premature, ushering in historic extremes in everything from sentiment
extremes to the heights commodity prices go in the interim.
Such an outcome would surely make it
feel like a true hyperinflation event had beset us, and along the lines of
today's discussion, likely cause new audiences to find religion in this
regard, forcing them to turn to real money alternatives on an increasing
basis in order to protect what little wealth they have left. So, the masses
might finally find religion in precious metals soon, which in turn will force
irresponsible
institutions to do the same or be replaced, which could send gold
and silver prices soaring. This is surely bound to happen at some point in
the not too distant future, but it might take some time, say, until later in
the fall to really pick up momentum. They say that under such circumstances
the lights come on for people one by one, which can make for a slow start,
however precious metals have been in a bull market for over 10-years now, so
this gas been going on for some time now, meaning the acceleration phase
could begin anytime.
Of course the establishment on Wall
Street does not want this to occur because it would signal intensifying
inflation, which is not part of the story line according to the Ministry of Truth,
where we are supposed to believe inflation remains benign. And these people
might be right sooner than one thinks if Bill Gross and the people over at
PIMCO are worried about the government's monetization practices
ending in June, which could send interest rates soaring, giving the opposite
impression to the surface dwellers. So sure, we might get the wrong
impression at first on the surface, but not long after interest rates begin
to rise, both the economy and stocks would fall, taking everything else with
such a development.
The only thing that's troubling about
this view is the charts below don't support this vein of thinking. Instead,
if we get breaks higher one would be compelled to think the inflation trade
is still on, which is contrary to the view presented above. So, the question
arises, 'which view is correct?' But perhaps a better question is, 'which
view will prove correct first.' As with the question, the answer will
probably turn out to be some complex variation of the two realities, perhaps
false breaks higher initially, followed by a
collapse to satisfy the deflationists, followed by a new monetization program
later on once everybody has had an opportunity to stare into the abyss.
Because at a minimum it's difficult envisioning precious metals shares (as
represented by the GDM) not taking off against the broads (SPX) for the
reasons discussed above (the lights coming on for people) at some point
simply because it has not occurred in earnest yet, where the public still
insists on ignoring reality. (See Figure 1)
Figure 1
 
And if we get a break above rectangle
resistance in the GDXJ / GDX Ratio, again, it would be difficult not viewing
such a development as 'significant' considering how long this resistance has
been in place, ever since the recovery off the 2009 lows, almost two years
now. Heaven knows participation rates are still dismal in precious metals as
the public continues to ignore reality, attempting to make believe everything
is 'just fine'. So who needs to buy precious metals shares under these
circumstances right? Everything is just fine. (See Figure 2)
Figure 2
So, in order for logical scenario to
play out, we need precious metals shares to remain contained for some time
yet, correct into summer / fall with the larger equity complex as interest
rates rise, and then break above the ratio related resistance outlined above
as the hoards finally find religion in the precious metals sector. This is
the likely path if the Gold / Silver Ratio
has any predictive capabilities remaining in this regard, where it has
reached fully extended (see Figure 2)
Fibonacci resonance related resistance now just below 40, meaning the
probability is high for a correction higher now. (i.e.
especially considering we at the 1998 lows of
38 / 39 right now as well.) This would normally mean precious metals (and the
larger equity complex) should correct lower temporarily as well, which again,
must occur at some point.
Fast forward to present and although
the GDXJ / GDX Ratio will probably not breakout of it's
rectangle until a larger degree correction arrives, based on the continued
strength in the inflation trade, this correction might not come until summer
now. The reasons for this are covered in our ongoing commentaries.
Unfortunately we cannot carry on past
this point, as the remainder of this analysis is reserved for our
subscribers. Of course if the above is the kind of analysis you are looking
for this is easily remedied by visiting our web site to discover more about how our
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Theory technician.
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out more about how our advisory service would have kept you on the right side
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We very much enjoy hearing from you on these matters.
Good investing and best of the season
all.
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