Silver, Gold And A Global View

Includes: GLD, SLV
by: Gary Tanashian

Last week the Silver-Gold ratio (SGR) failed to get with the bear memo as the sector got a hard shakeout, and look what happened. This week through the ups and the downs silver has continued to lead.

If it gets through the red dotted line we might say bye bye to the precious metals complex, leaving those schooling people about why to avoid gold and silver like the plague rationalizing all the way up. Silver's leadership, along with what is going on with China also says to me that an 'inflation (effects) trade' may not be dead after all.

Here is TIP-TLT, a spread between inflation protected and unprotected T bond funds, trying to break out yet again this week.

Separately, Jim Cramer was jumping around last night talking about how global stocks are now starting to carry the U.S. market, doing the heavy lifting, instead of the other way around. Why not just state that the risk vs. reward globally is better than it is in the U.S., Jim? Here's FXI-SPY, maybe a little too peppy of late and at resistance, but definitely having turned the corner.

Speaking of global stocks, here is an interesting comparison showing the TIPs fund correlating pretty well with the emerging market ETF of late.

TIP got hit yesterday in the T bond rout, but has been in a similar pattern to EEM since May. Is EEM saying that TIP will soon turn up as well, along with an inflationary phase? Regardless, TIP's relationship to TLT should continue to guide.

The chart above is the main reason I own Europe for a trade and a trade only. It spent months testing support at 2500 and targets 3000+.

Here is housing in the U.S., continuing to degrade and I continue to hold put options on it.

Although I continue to wonder how I would be allowed to profit from such an obviously bearish chart. That measly support at the June low is holding so far. If it breaks down and considering the interest rate backdrop, a long banks/short homies spread would have worked very well. I sold positions KRE and IAT, so I have done that spread, just not concurrently.

The post started as a big picture look at the Silver-Gold ratio but ambled along through other areas too. That makes sense because silver's relationship to gold is a macro credit spread of sorts and it is bullish. As substance abusers and casino patrons look for a new hot play, they may find it in silver.

This may signal that the macro markets - while changing to emphasize global stocks - will not ultimately top out until sometime in 2014, which is our current plan. If gold had continued leading silver (either up through greater gains or more likely down through lesser price destruction) things could have gotten dicey on the global macro.

I have a group of quality precious metals positions and a long standing view of real gold as value. I have a group of what I think are good U.S. stock positions along with ETFs covering the global picture in the event that the inflation, pumped so hard by U.S. and other developed nations authorities, finally begins to take root and kick off some effects.

It is not early in the inflation cycle. It is late. But the effects have thus far only rooted in U.S. stocks. I think it may now fan out before it flames out. All subject to tweaks, revisions and the improved focus that events yet to unfold add to the picture.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: No positions were mentioned but long gold, silver, miners, China, Europe and several large US tech stocks. Against these, put options are held on SPY and ITB.