Rock, Taper, Scissors - Shoot

By: Erik Swarts | Fri, Mar 14, 2014
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Rock, Taper, Scissors - Shoot

Led by their respective miners, precious metals continue to block and tackle higher out of the broad base they established last year. Should the anxieties delineated by the pattern continue, a brief retracement window for the sector will be opening with the March Fed decision next week.

Having said that, we do not believe at this time the reward in market-timing potential retracements warrants the risk of missing the next leg higher. Primarily, because the space has benefited from several different motivational catalysts, which often is the case with early but dominant trends.

While Crimea and China provide fodder for the business headlines as to why precious metals have received a strong bid of late, we take our cues largely from 10-year Treasury yields and the currency markets which have provided variable and overlapping tailwinds for the sector.

Although Draghi succeeded yesterday with jawboning the euro lower, its effects to the markets will likely be fleeting without material action by the ECB in the near-term. The same is true for the yen, with respect to further action required by the BOJ to arrest the retracement rally that has sapped broader risk appetites this week.

As we have followed and shown with our value-trap comparative with the banks (circa 2009 & 2011), the miners worked off the last layers of the ill-timed inflation premium worn last year with a successful retest of the financial crisis lows. From a confluence of different long-running perspectives, the outlook for the precious metals sector still looks strong.

Gold versus Gold Miners, Silver, and Silver Miners Chart
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Gold versus Gold Miners, Silver, and Silver Miners Performance Since December Taper Chart
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XAU:Gold versus GSPBK
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SPX:SPX bank Index versus Gold:XAU Weekly Chart
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GDX 2008-2014 Chart
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BKX 2008-2014 Chart
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BKX:SPX 2006-2009 versus XAU:Gold 2001-2014 Monthly Chart
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BKX 2006-2009 versus XAU 2011-2014 Monthly Chart
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SPX 2006-2009 versus Gold 2011-2014 Monthly Chart
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Silver 2012-2014 versus NASDAQ 2002-2004 and Nikkei 1991-1993 Weekly Chart
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Gold 2012-2014 versus Russell 2002-2004 Weekly Chart
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2009 TIP versus 2013 TIP Weekly Chart
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Australian Dollar 2009 versus 2014 Weekly Chart
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Australian Dollar versus Gold Weekly Chart
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USDX 2009 versus 2014 Weekly Chart
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Yen 2001-2003 versus Euro 2012-2014 Weekly Chart
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Euro versus US Dollar Index Monthly Chart
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Yen versus GDX Weekly Chart
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2011 Siver versus 2014 EWJ Weekly Chart
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Quantitative Cocktails Daily Chart
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10-Year Yields Chart
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10-Year Yields Chart 2
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Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or 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. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

Copyright © 2011-2014 Erik Swarts

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