October 24, 2019
By Mish Schneider
With today’s action in equities mixed, while many commodities followed through on this week’s rally, two scenarios remain omnipresent.
First, a potential worst case given the artificially low interest rates and all the geopolitical uncertainty:
Inflation currently at manageable numbers, turns to hyperinflation at unmanageable numbers.
Secondly, the potential best case:
This rally in commodities means global demand is increasing, thereby signaling overall economic growth.
Meanwhile, silver futures outperformed gold futures today as the silver to gold ratio got stronger in favor of silver.
Historically, that signals the start of increasing inflation.
With both of those possible scenarios in mind, let’s examine the ratio chart.
In July, we saw the ratio between silver and gold drop near all-time lows.
Then, once the ratio cleared the red line or a short-term moving average, silver got busy.
As with all sudden and fierce rallies off the lows, profit taking set in and since October, the price of silver has been consolidating.
Today, silver started to accelerate once again, thereby outperforming gold. I also like how the ratio is clearing the dotted line or Bollinger Band.
Gold miners also took off. Yet, silver has top status for the time being.
The implications support an inflation theory.
What we do not know yet, is at what point does the rising commodity and silver prices look healthy for equities versus at what point does that ignite too much inflation?
Regardless, my prediction leans towards the latter. For now, it’s been fun holding both a few of both equities and commodities.
Russell 2000 (IWM) 153.50 pivotal support. 156 resistance
Dow (DIA) 270 pivotal resistance. 265.50 support
Nasdaq (QQQ) 193.50 pivotal support. 190.45 key support. 194.50 next resistance
KRE (Regional Banks) 53.00 support 55.00 resistance
SMH (Semiconductors) 122.75 nearest support. 125.38 the ATH
IYT (Transportation) 190 support 195 resistance
IBB (Biotechnology) 105 pivotal support 108 resistance
XRT (Retail) 44 resistance to clear. 41.50 support
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