Gold’s Grinding Message

Precious metals boosters will see gold’s nominal price break upward and probably get excited.  They will marshal the troops for what could one day turn out to be a full-fledged tout, as if the 40% decline of the last 2.5 years had never happened.

But it is gold’s ratios to positively correlated assets that tells the interesting story.  Vs. Crude Oil, the story could be shaping up to be a positive one for the gold mining industry, which is counter cyclical and obviously energy and fuel intensive.

Vs. Copper the story is that anyone who believes conventional market analysis is the way to long term success in an era of chronic economic contraction (and inflation) is lost.  They say supply/demand dynamics indicate that copper is declining due to China’s economic deceleration, therefore gold – which had also been under heavy Chinese demand – will also decline.  A great thing about the blogosphere?  Everybody’s got an opinion.  You know what else everybody’s got, right?

Vs. Palladium we find a still unbroken support for an economic indicator.  We have followed the gold-palladium ratio (actually, Pall-Gold) for well over a year now in gauging a coming phase of economic strength and it does not yet indicate significant economic stress is imminent.

Vs. Agricultural commodities gold has gone nowhere.  The Ag’s had a tough go of it since the big spike in 2012.  This is an adjustment to that bearishness, but it is notable that gold is now at support vs. Ag’s.  I expect this support to hold.  Gold will keep pace with food prices, as it does over time with most necessary things with fixed costs in an era of Inflation onDemand ©.

Vs. Stock Market gold has ground higher in 2014.  This signifies the end of Goldilocks even though the stock market remains bullish.  The rise is a grind compared to the hard pop of last summer.  The stock market’s ongoing bull is no longer confirmed by gold.  Among many other interpretations, this may mean that last year’s near sole beneficiary of inflation is due to be joined and likely eclipsed by more traditional beneficiaries, like precious metals and at least some commodities.  Goldilocks finished her porridge and is now sleeping soundly, about to be awakened rudely.

Finally, Vs. Silver we have the most interesting gold ratio (actually flipped over to Silver-Gold).  The gains made thus far in the precious metals sector have been grinding at peoples’ nerves and that is a good thing for the bullish view.  Something born of pain is likely to be stronger and more enduring because what doesn’t kill you… Anyone?  Beuller?

If silver decides to turn up vs. gold things could get dynamic in the precious metals complex.  The ratio is now testing the support zone from last summer’s bottom.

Bottom Line

Paraphrasing Gordon Gekko, grind is good.  Both for the prospects of a lasting bull rally in the precious metals and for our thesis that the ongoing and grinding big picture global economic contraction remains firmly in place, including in the US.

Against this backdrop policy makers have worked their inflationary magic.  In the case of the US you have really got to tip your hat to Ben Bernanke, who proved a more than worthy adversary to gold bugs and hyperinflationists.

But gold’s ratios to many items positively correlated to the global economy are indicating that we are on a big macro pivot to be played out in 2014, just as NFTRH has been expecting all along.