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If we are to believe our eyes, we see a Federal Reserve and Treasury seemingly working together to degrade confidence in the bond of the United States. They are at the red line, and in danger of going where no Fed and no Treasury have gone before.
Yet still the company line does not change; 'employment is not high enough', 'inflation is contained when we exclude the trivial stuff like food and energy', 'full speed ahead'. Last summer, as the GSR tried to bottom and I watched the beautiful weekly inverted H&S for weeks on end like a moth on the screen door, I thought 'okay, the economy is going as (relatively) well as can be expected, they can ease up on the pedal a bit'. Abort! The GSR broke down. Then came the Flash Crash, which rightly reset everything to bullish, as markets panicked and become too bearish. [Edit: screwed up sequence of events... dohhhh, but you get the picture].
Very recently, I thought 'wow, nice early bottoming indication on the GSR (EMA 10 cross above EMA 20), let's watch the weekly and see what we get for reversal of trend possibilities. What we got was Egypt and a predictable result in the markets after a one day mini blip - full out bullish. The trend is feasting on greed and taking advantage of periodic blips of fear.
I'll tell you where there is no fear however; there is no fear out there that policy makers will withdraw the punchbowl, and if we are to believe the signals that are about to be rammed home in the gold-silver ratio, US Treasuries, money supply, etc. this unbridled confidence and greed may be right. The confidence in asset appreciation will be directly and inversely proportional to the lack thereof in the stewards of global currencies and government bonds.
In this scenario, which I admittedly resist due to some quaint notion about common sense, the preferred investment stance (gold sector) goes out the window, at least with regard to the "preferred" label, and a whole world of possibilities opens up.
Got to love the markets because a) this is so interesting it is like participating in an intense real life drama and b) they are the only markets we've got... for now.
Edit (9:28) This news item sent along compliments of NFTRH subscriber Shyam:
Market Nuggets: Barclays Technicians Look For Gold/Silver Ratio To Target 1998 Low of 41.90
(Kitco News) -- Technical-chart analysts with Barclays Capital look for the gold/silver "mint" ratio to target the 1998 low of 41.90. The ratio measures the amount of silver needed to buy one ounce of gold and is a gauge of the performances of the two metals against one another. The ratio is falling again, Barclays says. As of late Tuesday, silver was up 14% from its January lows, while gold was up 5%. Early Wednesday, with spot gold at $1,366 and silver at $30.52, the ratio stood at 44.76.
I cannot help but recall the 2005 item from Goldman's TA boyz talking about gold's fading momentum on MACD and the hard correction that was due, shortly before it shot up another few hundred dollars an ounce. Every contrary instinct tells me that the herd is set up for the offload of the speculative casino trade. As yet however, the trends are full on.
