Copper, silver and gold are a chain of metals progressively working from highly cyclical to counter-cyclical
[edit] Below is a picture of internal market rotations that could come in favor of cyclical commodity/resources related equities. Although currently, my long holdings include several Tech stocks, which are as yet getting bid best in the market’s relief rally, now targeting potential new highs.
Copper (weekly chart) is bullish as it makes higher highs and lows on the long consolidation from the 2021 highs at the height of the previous macro inflationary episode. After a hard down with most other markets in 2022 as the Fed increasingly but tardily donned its hawk costume, copper has been grinding positive.
With this year’s wax on/wax off, tariff on/tariff off gamesmanship going on between the US and China, the logical thinking is that if an inflationary macro phase is upon us, copper will be a feature asset within it.
The sensitive trigger we look at is the Silver/Gold Ratio (SGR), which would indicate a bigger trade in commodity/resources related equities if it does after the current plunge what it did after the 2020 plunge. In 2020, when the indicator (along with we at NFTRH in real time) realized the policy response to the Pandemic was balls out inflation (monetary and fiscal), the SGR ripped northward.
Silver, with its cyclical/industrial weighting much higher than gold’s, is an internal market indicator when compared to gold. An upturn would mean an upturn in cyclical inflationary elements within the macro.
Silver’s monthly chart works best to illustrate a bullish break above resistance at 26 and a firm hold of that level as support. After hitting our pattern target of 35 silver is now chopping around above the support at the 31 area. As long as this continues to hold, the sky is the limit for Gold’s wild little bro. When the silver bugs get going, then tend to really go.
We have a target of 42, but that is just a measurement. To my eye, if there is a snap back in the Silver/Gold ratio, silver will rip and the inflation trades will broaden out. If this manifests, a test of the highs at 50, at the least, appears reasonable.
Finally, the old man. Gold, which just sits on its ample behind most of the time, letting other consumable and cyclical assets get a move on when times are good, or at least cyclical-inflationary, made a big move of its own. Right to and through our long-held 3000+ target off of the 2011-2020 Cup and subsequent consolidation and bull pattern. This move was not surprisingly amid a gridlocks and fearful macro.
Well, with China/US trade news, if its implied relief has some staying power, gold will under-perform at best, if not continue to correct. This article is not a commentary on the gold miners, as there is more nuance to be discussed that is beyond the scope of this article on 3 Metallic Amigos. Okay, you just knew this was coming, didn’t you?
We became bullish on gold in June, 2019 when the base was broken and the gold price pushed through the Bull Gateway at 1378. I am still bullish, however as you can see, with a happy macro shaping up for a bit here, gold is rightly getting thumped from its extremely overbought condition.
If silver leads gold and the commodity/resources space gets bid there will be plenty of other areas besides gold mining in which to take a good trade.
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