Gold Ratios - Time to Pay Attention

Ever since the sentimentally unsustainable negative events of Q4, 2008, when gold simply exploded higher in ratio to over-played assets far and wide in a panicked rush for safety, the ancient monetary metal has been consolidating its relative gains. As noted at the time in NFTRH, this excessive reaction had to be worked off. Now, unfortunately for the unprepared and hopeful, it has been worked off. Forewarned is forearmed.

click to enlarge

Dialing forward to today, we find a tired rally in nominal stock, commodity and low quality debt prices. We see a rising Gold-Silver ratio (GSR) and a US dollar not far above our 'do or die' support level of 78. See the free, albeit abbreviated issue of NFTRH (.pdf) for the monthly view of USD.

NFTRH held and added gold miners strongly throughout the process of gold's impulsive rise in ratio to the things that are positively correlated to economies and rising human spirits. This, even as nominal gold stock prices imploded. Positions were added 'all in and around' a historic bottom and this trade has paid off quite well.

Okay, that is history. Now what?

We have been watching the GSR (among other indicators) tirelessly and its message for the markets has been actively bearish for about a month now. To review, when silver is rising relative to gold it indicates a willingness on the part of market participants to accept risk, to 'play'. The GSR has been working like a more sensitive version of the VIX in recent years. Ah, but there is literally a world of ratios that can be used to advantage when attempting to gauge the winds of the markets.

In the chart included today we see gold in ratio to the Reuters CRB commodity index ($CCI). Even as many people micromanage nominal prices of asset markets, gold's ratio to commodities tells a story of a bottom in the making, which of course tells a story of a top in the making in what NFTRH called 'Hope 09'.

Let this short article serve as notice that gold's consolidation vs. the assets of hope looks to be in its final stages. This is a bullish chart, and in this weekend's NFTRH41, we will look at gold's ratio to several other assets and markets. It is time to pay attention and it is time to get it right.

Markets travel in roundabout directions and cycles - both short and long term - must be endured. It is technical, sentiment and market ratio analysis that guides us through these cycles and keeps us on the right track. Please heed the above chart and consider what will happen when gold finishes consolidating the explosive ratio gains of 2008.

Comments

[doubleguns]

Commencing countdown. 10, 9,8,7,6,5,4...........

2009 Jul 10 01:05 PM

[ScroogeMcduck]

locked and loaded

2009 Jul 10 04:08 PM

[Andrew Amrhein]

Please forgive my ignorance, I'm still a student. Are you saying that gold has sufficiently consolidated and will there for begin to make gains at the expense of the equity market?

2009 Jul 11 01:59 PM

[Genesis]

What about Gold/USD? What about God/EUR, Gold/Dow, Gold/S&P, Gold/Oil, etc? That is fine to compare gold with the general commodities market, but I wouldn't consider it a comprehensive analysis, let alone a reason to put money into it at any given time.

Also, it's strange that you refer to non-gold commodities to be "assets of hope." I consider wheat to be a food having intrinsic value moreso than a speculative bubble-type of investment. Silver (now historically undervalued against gold) and platinum are also included among those "assets of hope."

Personally, I have better things to do with $288 than to pay for your market analysis.

2009 Jul 11 04:49 PM

[Gary Tanashian]

That is pretty much what I am saying Andrew. Gold has been consolidating its gains off of the unsustainable upside of 2008. When gold outperforms, it is a sign of financial stress.


On Jul 11 01:59 PM Andrew Amrhein wrote:

> Please forgive my ignorance, I'm still a student. Are you saying
> that gold has sufficiently consolidated and will there for begin
> to make gains at the expense of the equity market?

2009 Jul 12 09:25 AM

[Gary Tanashian]

Sorry you feel that way Genesis. NFTRH41, just out yesterday looked at gold-spx, gold-oil, gold-industrial metals and gold-silver. Obviously what appears here cannot be anywhere near as comprehensive as the newsletter. NFTRH has been on the right side of markets (both bullish & bearish) since its inception in September, 2008. That is because I look exhaustively at these ratios and many other non-standard indicators.

The market gives so many valuable clues if we are just willing to look at them.


On Jul 11 04:49 PM Genesis wrote:

> What about Gold/USD? What about God/EUR, Gold/Dow, Gold/S&P,
> Gold/Oil, etc? That is fine to compare gold with the general commodities
> market, but I wouldn't consider it a comprehensive analysis, let
> alone a reason to put money into it at any given time.
>
> Also, it's strange that you refer to non-gold commodities to be "assets
> of hope." I consider wheat to be a food having intrinsic value moreso
> than a speculative bubble-type of investment. Silver (now historically
> undervalued against gold) and platinum are also included among those
> "assets of hope."
>
> Personally, I have better things to do with $288 than to pay for
> your market analysis.

2009 Jul 12 09:29 AM

[TurtleTrader72]

From what I can tell, Gold should make its next major move to the upside over the coming weeks. Since gold is more of a currency invetsment, it has a strong inverse correlation to the US dollar. Therefore, if you have a bearish view on the US dollar, this recent pullback in gold could be a potential buying opportunity. Despite its recent resiliency, the US dollar has yet to reverse its intermediate term downtrend and will very likely continue this down trend over the coming weeks. Technically speaking, the US dollar is still trading (on the weekly charts) within its 'symmetrical triangle' chart pattern which suggest a continuation of its longer term downtrend. This should support higher prices in gold over the intermediate term.

2009 Jul 13 10:41 AM

[IsraelGold]

Concur with the post. As the ratios indicate, on a technical basis gold has been building a substantial base in 2009. This is a long-term positive for gold pricing.

2009 Jul 13 11:43 AM

[Sovestor]

Maybe so...until the markets prove the scenarios right or completely wring.

2009 Jul 13 02:20 PM

[Maxe Paul]

Well suddenly after 10 years of going up with stocks and down with stocks we are to believe that gold will now go up and stocks go down! I

'm not buying the theory, if the market drops gold will drop, along with commodities.

The only way i would expect this to occur would be due to a political event such as Iran or N Korea getting way out of line.

Basically i predict the more thumbs down i get on this post the more certain i will be right. BRING IT ON!


On Jul 12 09:25 AM Gary Tanashian wrote:

> That is pretty much what I am saying Andrew. Gold has been consolidating
> its gains off of the unsustainable upside of 2008. When gold outperforms,
> it is a sign of financial stress.

2009 Jul 14 11:07 AM