Market Anthropology: Portraits of Reflation

Friday, October 11, 2013

Portraits of Reflation

In the big picture that hangs behind this market, the silver:gold ratio – one of our leading metrics for appraising inflation expectations downstream, has turned up after making a cycle low this past summer. For us this has been a significant development – despite gold and silver’s recent weakness, because it marks a shift in the disinflationary backdrop that the markets have worked against since May of 2011. While the inflation data continues to come in weaker than most economists would prefer, we’d argue those respective data sets are backward leaning and not a true representation of market conditions today. 

We continue to work from the perspective that the precious metals sector is going through a retest and capitulation of the panic lows found during the financial crisis in 2008 and the sector breakdown that culminated in late June of this year. Once exhausted, our expectations remain they will again begin trending with those reflationary market conditions, as seen in the respective equity market breakouts and upside pivots witnessed this year.   

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