Market Anthropology: Semantically Silver

Monday, July 18, 2011

Semantically Silver

Thought I would do a two month follow-up on the long-term silver analog I created in May that illustrated what I perceived as very good business sense by one Carlos Slim. From my notes on May 15th:
A few weeks back as Zero Hedge wrongfully speculated (surprise, surprise…) that the silver shorts were DOA, because Carlos Slim was about to purchase the remaining physical silver out of the market – Mr. Slim was out actively hedging his own mine production two to three years out. In essence, likely more than doubling the market price he will receive if silver continues to trade along the backside of the parabolic arc as expressed by the Nasdaq, Circa 2000. 
The market pivoted with the analog in July and appears a whisper print away from 40. Should the market continue to follow script – it looks like the top of the range will come in around SLV 42 – after a shallow retracement ~ 40. I do not actively trade off of such a long term analog – perhaps I should be…

Its primary utility to me is to illustrate the arc of a long-term parabolic move and to give basic guidelines of where the market may trade. 
Here is another chart that exhibits the trend and performance correlations between the silver:gold ratio and the equity markets over the past decade. Like I have stated in the past, I look at the ratio loosely as a barometer of risk appetite in the markets. Certainly, and historically speaking, it can have  greater nuance than that (and I’m sure my mailbox will be filled with excellent reasonings and illustrations) – but for the sake of calibrating momentum – it is a metric I follow. 

Since the start of QE2, silver has taken on a mind of its own and is apparently sending the message that the equity markets are substantially undervalued… 

That – or one market is irrationally exuberant. My money is on the latter. 

Interestingly, today’s tape is further extending that performance divergence. 


I just joined Twitter. All my active trades and occasional market musings are disclosed in real-time here

(Position in UUP, ZSL, GLL)

Disclaimer: This is not investment advice. Always do your own due diligence. Erik Swarts is not a registered investment advisor. Under no circumstances should any content from this website be used or interpreted as a recommendation for any investment or trading approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor.