Market Anthropology: Dominoes

Thursday, February 21, 2013


What started off as a tinder ignition in the currency markets this fall – namely, the US dollar asserting quiet dominance over each of the major currency crosses (first the yen, then pound, Aussie, the Swiss franc and recently the euro); has now caught flame in the more emotional risk proxies of the hard commodity markets – specifically, gold and silver. 

And while silver typically runs the rabbit leg with gold on the risk continuum, the market began heavily selling gold over the past few sessions. This dynamic in turn has arrested the silver:gold ratio in the most recent swoon from undercutting the lows from late December. 

To make a long story short, we believe the recent leg lower in the precious metals sector will likely continue – until the silver:gold ratio makes a proportional low. Considering gold has recently led the charge in undercutting its August low, this volatile feedback loop appears to have ample room remaining to inflict additional collateral damages in the short term. 

This perspective is also buttressed by the Value Trap comparative – which to date has recognized very similar momentum signatures in how the financials capitulated and led the broader market lower in 2008 and 2009.  

Simply put, the miners have done the same with gold and silver here.