This is an absolutely fantastic piece about gold, silver, and global stock markets entering the perfect storm!
From Investors Intelligence: The chart below shows the S&P500 Index, in light blue, over which is superimposed the RATIO of GOLD / SILVER (inverted), in dark blue.
It is a challenging chart which raises as many questions as it provides answers – it is one of the outcomes of what we have labelled The New Abnormal.
a) Silver has predominantly been seen as an Industrial metal and occasionally as a monetary alternative
b) Gold has been used for millennia as a Medium of Exchange whose value increases significantly in periods of Crisis, notably the inflationary periods of the late 1980s and more recently during the Great Financial Crisis
c) The Ratio of Gold / Silver (inverted), in dark blue, has over the period 1990 to 2012, the Great Moderation, shown a positive relationship to the S&P500
d) As the US economy slowed, Silver declined in value and Gold improved relatively maintaining the positive relationship
e) But since 2012, the value of US stocks and the Metals Ratio has shifted markedly
f) Global QE (that is, US QE plus BoJ QQE and recently ECB PSPP) and a different interest rate environment – the bias towards negative interest rates – has changed this relationship
g) We are currently left with a situation where the Metals Ratio is now at levels indicating Crisis, yet US Stock Markets remain elevated
h) If this relationship were to revert back to the period of 1990 to 2012, it would imply one of three things: either Stocks should drop; Gold should drop; or silver rally – or a little of all three
i) Optimists might want to make an argument that as the Metals Ratio is now at levels which have marked the trough of prior equity market declines, the Crisis has passed – against this we would counter that Valuation levels are still extreme and at prior troughs they had declined
j) Watching these relationships over coming months will be helpful, but for now we feel it argues for the medium term bias for significant equity declines as part of the Perfect Storm – just not yet!
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***KWN has just released Rick Rule’s audio interview discussing the gold & silver markets and much more. To access it CLICK HERE OR ON THE IMAGE BELOW.
***ALSO RELEASED: Must See Interim Update On The Gold And Silver Markets CLICK HERE.
***KWN has just released one of Bill Fleckenstein’s best audio interviews ever discussing the gold & silver markets and much more. To access it CLICK HERE OR ON THE IMAGE BELOW.
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