The commodity rally, such as it has been so far, should take on a new intensity, possibly after a summer cool-down
Below I present for you one of those charts trying to say so much it could make your eyes water and your head spin. The chart is trying to quantify the history of loosely related markets (gold, silver, broad commodities and even the Canadian TSX-V index).
The reason we are doing this work is not to be bullish on the gold price, which we have been since the monetary metal took out the bull gateway (1378) in 2019. It is not to be bullish on silver, which is and has been bullish (in a lagging manner to gold) since its pattern breakout a year ago.
The reason we are doing this work is to gauge the coming of a commodity rally that goes beyond the wobbly upward biased pattern in the CRB index since June, 2023. Thus far, we have earned profits in gold (which I personally am not booking on this long-term insurance policy), paper and realized profits in gold stocks and on certain denizens of the TSX-V, which has been rising since Q4, 2023.
But according to the CRB index and its rise to clear resistance, broader aspects of the party have not even begun yet. Gold, as it often does, has led the process. Silver has caught on and just recently started to bounce vs. gold, and the TSX-V has been rallying in opposition to the declining Silver/Gold ratio (but in positive correlation to CRB’s upward bias).
Let’s bullet point some observations:
- Gold led everything else, as it often does, by ending its bear market in 2019.
- Silver took a final nose-dive in the COVID crash (silver is not gold, folks) and then shot upward, in alignment with the new, post-bailout “inflation trades” in CRB and TSX-V.
- The precious metals then began a well-earned and extended corrective phase as the Silver/Gold ratio declined, as did the TSX-V. The CRB index, an index of cyclical commodities, continued upward as cyclical markets – including stocks – benefited from the inflation-fueled economic recovery.
- With gold probably due to ease in relative performance to silver – and by extension, commodities – over the coming months/years, the question now becomes ‘will commodities break out imminently or after a summer cool down?’
Gold tends to lead a new inflation cycle, sometimes by a country mile. Silver is catching on. The CRB index is poised, and TSX-V is trending. What’s missing from the picture?
The Silver/Gold ratio (SGR) is bouncing, but still squarely in a downtrend. We have been watching for silver to bottom vs. gold and take up leadership since this (now public) update in January. However, short-term charts will direct whether a real break upward in the SGR will come imminently or after a summer cool-down/correction in many markets, including the precious metals and commodities.
It is important to keep in mind that the SGR is bouncing as expected, but within a daily chart downtrend. CRB is at resistance, and TSX-V has a resistance objective above at 800-850. We will manage these considerations on a weekly basis in our updates. But either way, history favors a tradable commodity rally near-term, or an even better one if a summer correction ensues first.
The above is not complete analysis. It is a generalization of what is in play. We will manage our more fine-tuned parameters each week to be sure we’re not caught guessing about the timing.