What Are The Markets Telling Us? Part II November 1st, 2019 by John Gross
So, equity markets here and elsewhere rose to new record highs; the unemployment rate remains at historically low levels, and interest rates have been cut for the 3rd time this year.
We can all be forgiven for not understanding this confusing, conflicting, and confounding situation.
When will normalcy return?
Perhaps this is the new normal, or maybe not.
The precious metals are trying to tell us something as they move higher, but the message is still garbled.
Are we being warned of higher inflation coming, or is it a flight to safety driving these markets? Or perhaps they are signaling the onset of a weaker dollar.
The first chart in this week’s report provides an update on silver and gold, with the second chart suggesting that gold has outperformed silver by a wide margin, and is due for a correction.
That is to say, back in 2011, one ounce of gold bought 32 ounces of silver.
This past July saw that same ounce of gold purchasing 94 ounces of silver, but the ratio fell to 84 ounces as of Friday.
In a similar vein, the relationship between copper and the S&P 500 looks like it has been stretched a bit too thin.
In August 2011, the S&P 500 bought 282 pounds of copper, and as you can see, it has moved up to about 1,155 pounds, where it has remained for the past two months.
To state the obvious, this chart is not / will not tell us if the S&P will decline, or if copper will rise to bring the relationship closer to its average, but we suspect something will soon have to give.
View Charts (PDF)