Signs of Inflation, Except in Gold and Silver?
When we look at the DXY, the US Dollar Index, cash bar chart, we can clearly see that the US dollar is building what appears to be a bearish chart with the possibility that we could revert to the downside aggressively upon failing to close above the long-term resistance of the 200-week moving average at 94.91. One of the clear and obvious data points with regards to the future of the US dollar is the level of inflation that we have seen in the commodity markets in the past year. Regardless of the mainstream media's lack of reporting of the economic facts about inflation, we can look at the individual sectors and see what they are telling us with regards to inflation. Crude oil is up 40%. Wheat is up 21%. Cotton is up 15%. Rice is up 13%. Wool is up 27%. Copper is up 20%. Steel is up 10%. Iron is up 5%. Coal is up 39%. What this data shows is the tremendous and temporary suppression of the price of gold and silver by Western central banks. Gold is up only 3.5%, while silver is down 2%. I believe that we've come to the end of this suppression in the price of metals as we begin to see the pressure of the commodity markets beginning to ignite what appear to be inflationary expectations.
Silver Rally Coming
In a March 12, 2018 Seeking Alpha report, I looked at the gold/silver ratio and argued that it signaled a coming massive silver rally. We have begun to see the gold/silver ratio decline from the 81-82 levels or higher, and it is beginning to confirm that the silver market is about ready to go up. With the economic data points confirming that the CRB index, a measure of inflation, is on the way up, with geopolitical tensions increasing in the Middle East, and global economic policies that are sparking a possible trade war, many factors in the international economic environment are positioning the silver market for an explosive move to the upside.
It looks like central banks have successfully manipulated the price of silver down 2%. The silver market is not very liquid and is called the poor man's gold. It has obviously been manipulated by central banks to keep the price of gold at bay to where they are controlling the price to extremely historic suppressed levels. When you compare the price of gold and silver to debt levels and to interest rates, it baffles me why gold and silver aren't trading significantly higher. Even silver has not reverted to its mean as the CRB has shot up. Central bank manipulation in the paper markets has distorted the true price discovery of both precious metals.
For trading next week, I want to focus on the silver market that is the most undervalued asset that we have in the world right now. The CRB index is picking up, so it's only a question of time before we see demand once again ignite in the silver market.
The VC PMI and Silver S&D levels weekly.
I want to look at the Variable Changing Price Momentum Indicator (VC PMI) and what it's telling us coming into next week by identifying the supply and demand levels for short-term traders looking for opportunities in the silver market. Silver closed at $16.74. Closing above the 9- weekly moving average of $16.66, it indicates a bullish trend. The VC PMI also tells us that if the price closed below $16.66 it would negate this bullish trend to neutral. For self-directed traders, you can use the $16.66 point as a pivot point or protective stop.
With the market closing above the weekly price momentum indicator, the average price of $16.68, we are coming into this week with a bullish price momentum. The VC PMI also tells us that if the market closes below $16.68, it would negate this bullish price momentum to neutral. This is a second level protective confirmation for self-directed traders that if the market activates the signal, it gives you a specific call of action to take: if the market closes below $16.68, it would activate the extreme below the mean buy 1 (B1) level of $16.43. The buy 2 (B2) level is $16.11. If the market comes down to activate the B1 level, the VC PMI gives you a 90% probability that the reversion will occur back to the mean of $16.68. If we come down to the B2 of $16.11, there is a 95% probability that the reversion will bring the market back to $16.68.
Coming into this week and closing above $16.68 has activated the extreme above the mean of sell 1 (S1) at $16.99 and the sell 2 (S2) of $17.25. If you are long coming into this week, use these levels to lock in profits and go neutral. If you have multiple positions, you can use the second level of $17.25 to liquidate your multiple positions and go neutral.
As I look at the data points for this week, particularly the CRB Index, I feel that inflationary expectations have been confirmed. What has also been confirmed is the continued suppression of metal prices by Western central banks. As we continue to see inflationary pressure with crude oil continuing to go up, it is inevitable that eventually the prices of precious metals will catch up and adjust to their economic inter-market relationship for the price of gold and silver to crude, gold and silver to cotton and to every commodity in the CRB index. With the gold/silver ratio indicating that the market has topped on the index around the 82-plus levels, it is clearly giving us a long-term picture that the path of least resistance for the silver market is to the upside. We are going to continue to focus on the price of silver in reports over the coming weeks since I feel that the profit potential in silver is the most attractive from a long-term perspective of any asset in the financial world. Buy corrections!
Disclaimer: The information in the Market Commentaries was obtained from sources believed to be reliable, but we do not guarantee its accuracy. Neither the information nor any opinion expressed herein constitutes a solicitation of the purchase or sale of any futures or options contracts. It is for educational purposes only.
Disclosure: I/we 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 (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.