Submitted by SD Contributor FW:
When silver outperforms gold, it’s an indication that both metals will perform strongly because the “inflation trade” has returned and given “modern” perceptions of the global monetary system, “professional” traders and investors have an easier time understanding and believing in the notion that the PM sector performs well during periods of inflation, and less so during periods of deflation, regardless of the historical record;
Keep an eye on the long end of the US bond yield curve as we may have very well seen the ultimate top of the 30+ year old bond market bull run.
Adding on to Doc’s on-target analysis regarding the gold/silver ratio breaking it’s 15 month up-trend, it should also be noted that when we see a switch, with silver outperforming gold, that signals a sentiment shift in the overall financial markets towards the view that accelerating inflation is more likely than a deflationary debt implosion (or, partial implosion).
In turn, that just so happens to fit nicely with the recent back-up in long-term US bonds; when people are fearful the entire system crash will escape the abilities of policy makers to paper-over the implosion, they run to bonds in an poorly conceived view of safe haven, the result of a distorted understanding of monetary history along with the popular perception that the gold and silver markets are too small to provide effective safe harbor in a uber-leveraged, multi-trillion dollar global economy.
Take-home points:
1) When silver outperforms gold, it’s an indication that both metals will perform strongly because the “inflation trade” has returned and given “modern” perceptions of the global monetary system, “professional” traders and investors have an easier time understanding and believing in the notion that the PM sector performs well during periods of inflation, and less so during periods of deflation, regardless of the historical record;
2) Keep an eye on the long end of the US bond yield curve as we may have very well seen the ultimate top of the 30+ year old bond market bull run;
3) Notice the confirmation to the return of the inflation trade we’re getting from from food and energy, and soon, prices in pretty much everything else should begin a new move higher;
4) Mining equities also tend to see stronger runs during periods of active inflation trade perceptions, as compared to periods where everyone is freaking out about the entire financial system falling apart (e.g., 2H-2008, when mining shares were beaten down to a pulp).
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
No.
Aww, come on Ben. We’ll give you a cookie. How about a bonus to your Swiss bank account?
Jim Rickards says there will still be a “flight to safety” which most investors perceive as being UST. Seems like if interest rates go up the whole thing comes crashing down. So I tend to agree with Rickards that there is still some life left in Treasuries. Was it Bob Chapman or Jim Willie who was saying the 10 year would go to 1.25% and possibly as low as 1.0%? At any rate, I have my silver. So the rest is just a wash.
The safety trade will remain for a while. But it was never as important as the bond buying by the Fed itself. In fact, the mainstream media has been lying about the safety trade, conflating the Fed buying with that trade as if all the buying was coming from the safety trade. The Fed bought over 60% of last year’s issuance and this year is no different and likely worse. Of critical importance, the Fed now has used up much of its short duration paper, having sold it in exchange for cash to buy long duration paper under Operation Twist. That program created a huge bid under the market for long duration bonds. Now that the Fed lacks the assets to cash-in for the Twist, they’re going to have to “print” to buy the long duration paper. The timing of the back-up in bond rates actually matches the Fed balance sheet inventory depletion of short duration paper.
I know that Jim Willie made that call, and maybe Chapman too (R.I.P.). That call was a good call and they deserve credit for it. But the game has now changed and let’s just say that if there’s anyone out here reading this that is thinking about locking in a lower rate on their refinance mortgage, it would probably be wise to act FAST. 1% on the 10 year isn’t going to happen unless we have a sudden black swan deflationary event, which I don’t think is in the cards. I firmly believe we’ve switched over to inflation mode in a more pure manner. We’ll still have deflation forces happening in the financial sector at the same time, just as we’ve seen since 2008. But inflation is going to become more visible on a net basis globally. We see the inflation forces bubbling up though the real goods and real services sectors. The bond market turn conforms with the thesis. The fact that the Fed likely has to take non-sterilized actions going forward also supports the inflation thesis.
Wombat…another great post. I think you’re addicted. Betty Ford clinic for you brother.
Thinking you called it nicely last week WF.
Thanks. My money has been were my mouth has been too; I’d have more than just egg on my face if I was wrong
I could see the PM sector turning in early August and got even more deep in things PM. Back on my Aug. 8th call on SD, it was pretty lonely making that call.
FW you have been providing some really good input From my perspective the August tightness in silver supply along with large buyers finding no scalable buys in the market, means they may actually have to dredge downwards with some sort of higher priced ‘fill or kill’ order. I will sell them some silver at $200 an oz Just a pinch mind you.
Inflation is definitely here, paid $3.75 for gas today and $38 worth of groceries barely filled 3 plastic bags. The only real buyer of US bonds right now is the Federal Reserve, they can only buy so much before they have to say no more.