1:10 AM, the eyeballs opened up. It’s now 2:34 and halfway through the pot of coffee. Charts opened everywhere. “Hey – maybe people might find it interesting how I see ratios and how these can impact where we are going”.
So this is a post with a bunch of charts and commentary on each. Some may have repeating themes, but I like the idea of showing how things can move from one extreme to the other. If you know there’s a bounce back and forth pattern, of sorts, you may be able to anticipate the general directions.
To recap how I look at these things – part of my education/career has been in IT quality control. So I see everything in relation to following processes and procedures set up. For example, if you had say 2000 call tickets per month, and you were always between 40-42% first pass yield success – and this month you were at 46%, something happened. Or, if it was 34%. You can establish that 40-42% is “normal”. What about 46%? Did your team suddenly get better? Is it POSSIBLE a new manager is fudging data to make himself look better? Did you hire a few techs that are killing it? What about 34%? Maybe you find your best 5 techs left. Maybe the SW you use for knowledgebase systems was down. If you find that these processes that were out of normal then corrected, over time, it would be a mean reversion. Gravity would pull it back to normal. If using Statistical Process Control, you can see when things start to slide from the mean. Perhaps the machining you use is getting duller and because of this, you are having more deviation from the exact measures?
Point is – many things BEHAVE in channel formation – especially with seeking value. If a stock has a PE ratio of 100x, it can signal it is overvalued and investors might leave. Or, if a PE ratio is 4x, investors might take a stab at value.
This is how I see a lot of things…
I caught some heat from someone using this method because my oil chart did not look like his. I used the yearly closing dollars of oil to again, smooth out erratic movements and noise so you can get a GENERAL ballpark of the RELATIVE value of things that is not compromised by a news headline.
Furthermore, Maloney talked about wealth cycles which was when I started taking my background with metrics/IT quality control/operations management and marrying this behavior to asset classes and items within. So now let’s take a look at a ton of charts while I go get another cup of coffee.
Chart 1: Dow to gold ratio
On this monthly chart, you can see the approximate ranges I’m looking at. You can see how at the dotcom top when gold was $250 how this relationship was stretched abnormally high. Those of you 30 or below probably won’t remember much of this time, but you could not turn on the TV without seeing commercials for new websites everywhere. The Super Bowl was littered with them. It was a massive bubble, much how the crypto scene is now. Mysteriously, most in their 20s who love crypto weren’t alive for long when the dotcom craze happened.
This chart above tells me that we are headed to a path where Dow is going down, gold is going up, a combination of both, or Dow is going up and gold is going up much faster. Seen through the lens of probabilities, I’d say it’s more likely than not that sector rotation will have overvalued stocks sold for undervalued gold. This chart is a little outdated in that right near the top of this channel is where gold just recently hit $2074 and challenged the ATH. This means this red line going down may have gold beating its ATH monthly. That is powerful to think about.
Chart 2: Gold to GDX ratio
IF I think gold is the place to be, then I want to buy miners. This chart shows the line I drew months ago is coming true, as my portfolio is up roughly 50% from its lows a few months ago – which was up by as much as 75% a few weeks ago. This is showing me relative performance of ALL MAJOR gold miners to gold. Once it starts to approach that bottom line, I believe major miners may underperform gold. Right now, I think of this move down as “miners are actually digesting the $1800 gold as real”. But what I see happening now with this is a move up to $2400 gold could be sudden, but miners may not bite. This could be the “we don’t believe $2400 level” crowd.
So it is possible IF we hit this line, to get out of gold majors.
Chart 3: Gold to NEM ratio
With this chart, I wanted to look at the biggest major in GDX to see what might be cooking under the hood. What I find interesting about this, to me, is that it just crossed down into “sell NEM to buy gold” territory. Meaning, $81 might be a high for NEM for awhile. I don’t short anything, but this would be something I see languish for awhile.
Chart 4: Gold to AEM ratio
I have noted before that AEM is undervalued, relative to NEM. As you can see, We still have some meat on the bone here for AEM, which is why I’m long them and not NEM now. I like the idea that they might have another 10-20% yet before they are cooked. These charts aren’t perfect, but to me it is signaling that gold might hang around at this level for a bit and AEM still outperforms gold. At some point, I think gold is going much higher.
When NEM and AEM are at this line, I’m considering at some point to take profits from these trades and possibly look at GLD options for a 1-2 month hold, anticipating gold moving up. The issue is, gold could go down, and miners go very hard down which could produce the same line. So be careful with interpreting relationships. IF I did the GLD options, I’d probably have a 10% or so area where I’d cut losses and be in cash.
Chart 5: gold to oil ratio
Given all of the geopolitics regarding Russia going to a gold/oil backed ruble, you can sort of get an understanding about their relative value going back nearly 40 years. For the last 7 years or so, this has remained in a higher part of the channel. I have the APPROXIMATE mean here around 20 barrels of oil per ounce of gold. So if gold was $1600, that would be about an $80 barrel price. Given that gold was $1200-$1500 for a good portion of the 2010s, you can approximate this to show oil was probably in the $80-$90 range or so if you use USD.
The problem is IF gold gets re-valued due to oil/gas/rubles, we need to then understand the concept of cost of oil in g of gold or barrels of oil. Here, we have a 40 year average which shows about 20 barrels per ounce. The big spike in 2020 was the -$37 per barrel when the world closed for business and oil was being produced, but not consumed.
This tells me we are due for a period of time where oil will increase in price, relative to gold. Perhaps this is Russian oil missing from supply driving non-Russian oil way up? This could also signal gold going way down in price and oil not going down as much. $1000 gold and $100 oil gives you 10:1. But if $2500 gold is coming, that could also signal $150+ oil.
IF this continues to break down, what is this telling me?
- IF gold price is $2500, miners can absorb the much higher fuel costs
- For NOW, in this situation, royalty plays like FNV/WPM might outperform peers.
- Be careful of this higher fuel price smashing profits on juniors
Chart 5a: Gold to FNV ratio (did 5 twice at 3AM it seems)
This bothers me a bit. There really is no parallel channel, but a continuously down sloping wedge. The oscillation is not sine wave-like in that it compresses. To me, this bothers me a bit. At 11.4 now, it’s pretty much near its best valuation against gold, and gold is near at ATH. To me, I don’t see a massive amount of meat on the bone or value here. Now, IF we can use the 10.5 as an approximation for gold to FNV ratio in a scenario where gold and oil increase, we can then extrapolate that at $2500 gold, we are then seeing a $238 price. However, at $164 now, that is a price move of about $80 (50%) on about a 25% move in gold. Meaning – you get decent leverage to gold with low risk. This might then be a play I might buy a call option or two, as they might be kind of expensive.
IF you are a hedge fund and want a low risk return on a solid move in gold, this is how they may play it – just buying the shares and not caring about the price of oil.
Chart 6: Gold to GDXJ ratio
With this one in particular, I wanted to compare it to the GDX and as you can see, we trail the GDX in the race. To me, this is saying in the next 1-2 months GDX is going to get overcooked and rotation from GDX into GDXJ will commence. You can see in the 2016 and 2020 run ups in gold how gold first outperformed, and then those STRONG red down moves there is GDXJ snapping to attention and kicking in the door. I believe this leg up now to $2074 has some strong moves in GDXJ coming inbound.
Chart 7: GDXJ to FSM
With this, I’m a huge FSM fan of being undervalued to peers. I use this as a measuring stick to how far undervalued it is to its GDXJ peers. Most don’ realize that Fortuna SILVER mines only produces 27% silver these days and is a 70% gold producer. They have some lead and zinc as well. But they are a member of GDXJ and this is their peer group. Look at that beautiful line down that could be coming soon. With GDXJ to me going to catch a bid soon, it stands to reason that by June GDXJ is cooking and with it, FSM is also then outperforming the GDXJ. I can’t be the only person seeing this.
So I then went to the FSM charts to find trading ranges, important resistance lines, etc.
You can see that in 2016 and 2020, it had nice run ups, but with this last gold move to $2074, not much. There’s a line around $4.10 that has been resistance for some time as noted by the red circles. The 50dma is about to have a golden cross through the 200dma soon. Additionally, it has bounced down from the 200dma several times and there’s a nice resolution coming soon, I believe to the upside. Once the golden cross happens and this closes a few days above the 200dma, watch out. These worlds are colliding within weeks.
Chart 8: Gold to silver ratio
I mostly would use this for buying/selling physical, and perhaps a signal of when to look to rotate from gold miners to silver miners. A majority of what I have now is GDX, AEM, FSM. I am running with the hot hand, and may rotate from GDX to GDXJ soon and AEM to AUN (Yamana) soon, if the ratios work out in their favors. I believe we have $2500 gold ahead – BUT – as the charts above indicate, we may have some time to get to $2500, but before that we may see the GDX-types and GDXJ types catch up to gold in the next month or so, then gold may run like a thoroughbred.
But when gold runs, silver follows – but you may see that GSR get back into the 80s. With this, to me, it’s possible we can see the gold miners rotate to the silver miners. Let’s see how a GDX/SIL chart works out.
Chart 9: GDX to SIL
What this is telling me is that SIL has significantly underperformed GDX – and perhaps GDX is near over-cooked. I’m hearing some calling for a near term target of $47 with GDX. IF so, then I can see a pullback or sideways motion in GDX as SIL catches up.
All of this is kind of pointing to silver not catching up enough to gold. IF gold is going to really move soon, silver still hasn’t caught up to the recent move. Could we see $27 silver soon before a gold move back up over $2000? Seems more likely than not.
Chart 10: Gold to copper ratio
People like to say “Dr. Copper” and all. But if you look at this here, you can see this in a normal range at the moment. Perhaps it can slide down towards the lower rail. If so, that would indicate a stronger copper price than gold ahead. Wait…what? I have options on Rio Tinto and they are doing well, but to me this looks like gold might be heading higher, but copper could outperform gold ahead and copper looks to be near ATHs.
Chart 11: Gold to corn ratio
I like to say “everything in the financial system revolves around gold”. You can see we are at the upper limit of gold to corn. But I know corn has had high prices recently. And I can see the high price in gold in 2020 with the spike. But this suggests there could be a move towards the lower rail ahead. But with $2500 gold ahead, that’s telling me corn could significantly outperform gold. With all that is going on with food supplies and fertilizer in the world, this indicates that corn futures could be a decent long bet.
Chart 12: Gold to natural gas ratio
This would seem to indicate that with gold near all time highs and this at the bottom of the channel, and gold to go higher, that nat gas would underperform gold coming up. Obviously the nat gas situation in the US is different than Germany – but this stands to reason we may be headed either sideways or lower in nat gas. I missed the move in TELL and EQT as I got stopped out of them a few times with their erratic trading and then missed the massive moves up.
Chart 13: Silver to SILJ
I can see the big flat channel, but there’s also an angular channel up here from 2017. I can see how this can break down further if silver makes a move to $27 in the next month and SILJ not performing as well, but then I would see SILJ playing catch up and thus move down the channel. I drew those lines 3-4 months ago, so it’s interesting to see how the latest move down halted on this line. This has shown SILJ has outperformed silver the last few months. If you look at all of the items above, you can see a possible movement happening…
GDX to catch up to gold, GDXJ to catch up to GDX, gold to move higher. Copper/wheat to go higher and nat gas recede. You can see a path for oil to go higher. Nat gas is used a lot in the US to heat homes (mine included) and summer travel is coming up – so this narrative fits nat gas going down and oil going up.
With this, I can see the next month – gold going sideways as GDX/GDXJ catch up to it with silver outperforming gold. This would have this line going up to indicate silver will outperform SILJ.
Chart 13: Gold to lumber
At the top peak here in 2011, you had the housing market here in a shit show while gold hit an ATH. If you look at the bottom of the channel, today, you had gold just about tie its ATH when lumber was very strong. So at the bottom of these channels, lumber is strong relative to gold. It also tells you where real estate is overvalued to gold. Think about that. Gold is near its ATH and this is at a DEEP sell signal for real estate relative to gold. To me, that tells me how deeply OVER valued houses are right now. IF I’m seeing a path for $2500 gold AND we understand that mortgage rates are now rising to 5%, the housing market is going down like the titanic. Buckle up. This is saying gold is to outperform lumber, from an almost ATH? I believe there’s a combination here of both gold going up and lumber going down.
Chart 14: Gold to live cattle
With gold being near ATHs, cattle has outperformed gold since July 2020 where gold is about the same price as it was then. If you look very closely at this, it’s telling you cattle may outperform gold in the upcoming years. Could this be a result of food shortages? Inflation? This chart is over 45 years, and with this, tells you beef is about to get very expensive the further down this chart it goes. This might be a reason that Bill Gates has so much farm land now to grow soy and tell men to get moobs by eating all of the soy protein in fake burgers.
Chart 15: Rubles to dollars in gold
This chart here is new for me. Credit given to @Brian_zarb for the formula. The implications of this chart are staggering. The ruble held to the USD for a certain number, then around 2011 it started sliding then dropped off a cliff with some of the sanctions from 2014.
Recently, the ruble dropped off yet another cliff with the invasion of Ukraine, but then asking for rubles for gas was an ingenious move. Almost immediately, the ruble regained all of its pre-war losses, and is potentially poised to be a very strong currency with a link to gold and oil/gas. It seems Russia is going to ask for ALL commodity payments in ruble from “non-friendly nations” down the road. IF we are seeing the beginning of the rise of the ruble, it stands to reason it can get to pre 2014 and pre-2011 levels. This effectively can put gold around $5000-$6700 in a range.
While many people are quick to point out that Russia has not given out 1 gram of gold for 5,000 rubles, there was a tweet by Brent Johnson that Russia had 2100 tons of gold and if that’s the case, you would need $11,000 gold for them to have a gold standard.
Well, if you use the M1 – you can see above how a stronger ruble alone could take the price of gold, in USD, to $5,000-$6,700 easily.
IF you were to just go by today’s exchange rate and use M2, let’s enter the gold bugs at King World News. Alisdair Macleod has reported that his sources are saying Russia has 12,000 tons and not the 2,100 reported above.
IF true, then you can look at the M2 money up above, and see the figure at $11,038. Given the report here has 6 times as much gold as reported on Brent’s stats, that means the M2 price for gold would be 6 times less. That means you would need an $1,839 price at today’s exchange rate for Russia to have a gold-backed ruble.
As of this writing, this is where we are at this second.
Can the Russians, at TODAY’s exchange rate have a gold-backed ruble? It appears so – IF they have 12,000 tons.
However, remember, if the exchange rate moves back to where it was pre-2011, then at 2,100 tons, they have enough to cover the M1 money supply.
What I’ve been talking about in my interviews is that Russia has developed a new mouse trap. It’s a gold backed system, but the gold is the money. IF you want to redeem your rubles, you go to the oil window. This prevents a run on gold, AND oil can be listed at mkt price so if anyone wants to try and make a run on oil, the price of oil just goes vertical.
Many of you use a lot of arcs in your charting.
All those arcs are, are half a sine wave. This is when you get the overshoot or undershoot of something. Perhaps gold becomes more valuable relative to oil. This doesn’t happen in a week. It could take months or years.
So when you look at these charts and see arcs, many want to see exactness and touches to arcs. There’s no law out there that says things need to touch your arbitrarily drawn lines. However, you need to step back and look at what things are doing, behavior-wise.
I’m going to share some arcs here. Note that I don’t care about precision touches. I care about what the message is saying to me.
When you look at the cute arc charts, and things don’t go as planned, you tend to re-draw the arcs. But let’s look at Fortuna to show you how I see things, and how something undervalued has a lot of torque coming to it.
With arc 1 above, you saw something go up in value – FOMO chased it higher, and then you have the yellow arc which would be a cup here – consolidation followed by support and validation of the price. However, check the blue circle. New information came in here with the new Peruvian president who seemed to be anti-mining. Look how that knocked price down into the green arc 2. This is where price will get knocked down by this news, then over time, potentially recover and validate the level. But a funny thing happened. The news that knocked it from the yellow arc to the green arc reversed. The president was removed in early November, and price rallied back to the yellow arc. Within 1 week of regaining that, then FSM had the potential to lose its environmental permit at San Jose. This knocked it back into the green arc.
This green arc then recovered a bit with the news that the permit was re-instated for 12 years. Started heading back up to the yellow arc. Then, news that it was only 2 years, not 12. FSM is now in court fighting this. The point is, the market is still acting as if there’s no revenue coming from San Jose. It never stopped operating. My expectation is that at some point, the market will see the growth and revenue story here and it will recover quickly back into the yellow arc – perhaps in the red target zone.
Overarching point is that while charting can help you project price points – there are critical information points with that stock which ultimately drive price. Had there been no San Jose issues, you can see that given the arc above, FSM could be trading at $6-7 right now. This is congruent with how it is undervalued to its peers in GDXJ.
When you do these arcs, they aren’t perfect. Remember, news cycles and important company news can move a stock. But an entire INDEX may be moving due to underlying financial conditions.
Does this mean it is dead? No. It looks like it could linger sideways for months or even have another 5-10% up move. But to me, this has an inevitable move down coming. I believe this is the same principle as a double top or double bottom. Or in the case of the DXY, you can see how these peaks and valleys are the same principles for head and shoulders, triple tops, etc.
If you look at all of these things – they all have a likeness of an arc.
Which all look like this….
Which is a sine wave.
So when I tell you I feel the DXY is going down in flames above, look at the arc. Call it a triple top. A head and shoulders. I don’t care. What you see from the DXY is this….
Notice that blue circle?
That’s about where we are with that.
Which all look like this…
So at the moment, I feel you have the dollar bulls, Dow bulls, and BTC bulls all at or near the anxiety/denial stage.
On the flip side, you now have somewhat of optimism on the gold/silver side of things. That red circle is the 200dma about to poke up in a golden cross from the 400dma. When I looked at how this acted in 1977 and 2009ish, the cross back over seemed to be institutional catnip and when launch into orbits happened. So we might be days away from this.
I think channels can also tell you a lot about behavior. Remember above you had the UCL and LCL in the statistical process control? Well, you can have the same on a slant, if you will. For example, let’s look at the 10 year.
This chart can tell you a lot. First, you see the top red line, which is sort of the UCL limit for this – which is showing a 40 year downtrend in rates. If you think about the reasoning here, in the US, rather than wages going up, jobs just got shipped off overseas or you were replaced by a computer program. This is deflationary, of course. The problem is, that they changed the inflation formulas in 1980 and 1991 to thus project a lower inflation than should have been reported. This also depressed wages and payouts to things like social security. The lower control limit seemed to deviate off of its course around 2009. This is when you had things like TARP and right after the GFC hit to the stock market. You can then see where rates raised in 2017/18 to try and raise rates to “normal” levels. The markets tanked, and with this, rates went sliding back down – again walking into a deflationary shock in 2020.
What you are seeing now is a deviation from the UCL. This is with the fed no longer using QE and 16% inflation, according to shadowstats. Apparently, there’s a form of yield curve control in play here in that Japan just bought a bunch of debt – presumably at our behest OR to keep the value of the bonds they have from crashing.
With the channels above, you are also seeing things in the context of ratios and price action. It doesn’t mean things cannot deviate from these channels – but they warrant inspection as to WHY.
With the 10yr, it is plain to see to even the most casual observer that it is POSSIBLE a 40 year down trend may be over. The dotted red line seemed to change the LCL, and that was around the time of QE and ZIRP/NIRP. It is VERY possible that with the crazy inflation we have that we could see a trend of 5-10 years of interest rates increasing.
Around the time of this, you are also seeing yield curve inversion. People smarter than me on this tell us that this is a predictor of recessions.
Using channels, ratios, and arcs – we can make educated guesses and reasonable conclusions about what we are seeing – perhaps from a probability point of view?
- It is more likely than not we are heading towards a recession
- It is likely interest rates will continue higher to fight inflation, thus tightening credit and making cost of capital become much higher
- It is likely that wage increases and inflation pressures reduce operating margins, thus leading to layoffs, plant closings, and a contraction within the economy.
- It is reasonable to see how a much stronger ruble could lead to higher gold prices in USD. Since the COMEX paper prices have been obviously manipulated, it is likely drawing cup and handle with measured moves is NOT going to be effective if/when the pricing is based off of ruble/oil/gold.
- If the ruble firms up much more against the dollar, it is likely to see gold prices start to follow this relationship and not COMEX. Shorts can get baptized and with it, lose control of the pricing mechanism.
- Gold may significantly outperform lumber, and mortgage interest rates are near 5%. Coupled with a likely recession, we may see a free fall in the housing market.
- Gold has a lot to run yet – but miners may stall out soon. GDX may have another 10-20%, but GDXJ may sling shot.
- As gold goes up – it takes silver with it and the silver miners should catch a bid shortly.
- Many of the arcs you see with miners now are set up very bullishly for strong moves incoming. It is possible to then see a pullback to the arc as gold is reaching new highs.
- It is reasonable to see the Dow upside down arc as a signal of a recession is coming, stagflation, or both. It is likely to see a negative trend over 12-24 months.
- It is interesting to see many of the commodities are pointing to gold about to outperform them. Many of these ran up with inflation, and it’s as if gold will need to levitate to get back to the mean with them. Of course, gold may overshoot.
- It is much more likely than not that the DXY has a path to the 70s ahead. Double top, triple top, arc, head and shoulders – whatever pattern you are looking at, add it to how the dollar and other currencies may weaken against the ruble and yuan, and it is likely that the dollar value will plummet.
- It is likely that as the dollar values plummet, and interest rates remain low in high inflation, that more and more people will try and get out of the dollar into anything else. It is likely that countries may no longer need the dollar to buy oil, and with this, foreign reserves in USD may be slashed.
- It is likely that countries that have lukewarm ties with us were rocked by the sanctions we did against Russia, and with that – these countries may be planning now to sell any US debt they have and to abandon dollar holdings in a foreign bank that can be seized
- Central banks around the world have been buying gold since 2009. It is likely that Russia may have the means and will to have a soft backing of commodities/gold to the ruble. This also makes it likely the price of gold, in USD, will go significantly higher.
- It is likely with all of the derivative instruments in existence that with an unexpected recession in MMT-land, that some or many of these derivatives may crash. It is unknown what implication this has for very large banks.
- It is likely that at some later point 1-2 years down the road that a lot of the system begins to fail with liquidity. My thinking is most people that are in gold at this point aren’t selling it for margin calls on other things because anyone in gold in size realizes most other things are shit. This is banking problems. Your trading account may no longer exist at the bank.
- It would be prudent when RSI is over 70 at key resistance points where MACD is ready to roll over to take some profits and take a portion of these profits to buy gold, silver, and pay down debt.
Can we have a melt down of everything? Sure. I find it not likely though since the plunge protection team seems to back stop things. My personal belief has been for some time to side with Michael Oliver on the arm wrestling idea, where there will be sector rotation out of tech stocks and over valued equities, cryptos, and the dollar, into precious metals.
To me, it is important to look at the ratios of a lot of things to “skate to where the puck is going”. Sorry to the Canadians when I butchered that saying a few weeks back.
Overall, I am a believer in a lot of methods/systems of projecting price. Elliot Wave is a new one I’m following – but you cannot be dogmatic on any one system. Personally, I do NOT believe we need to be self-flagellating every single time we have an up move in gold. No, I do NOT believe we need “one more smash” to move higher. No, I do NOT believe we need to have everyone HATE gold for it to move up. Quite the opposite. You need optimism. You need people getting in. You need institutional backing. You need for a steady and gradual and persistent move up over years. That talk might be good near the bottom at $1675, but I think it is horse shit when we just saw $2074 a few weeks ago.
I think using the MACRO bigger picture and analysis of where things may be going – helps you then invest in longer term items. Elliot Wave or TA might help you for shorter term trades, but the macro analysis I believe is stronger for anything beyond a few weeks out.
Trading and investing LT are two different beasts. I do trade a portion of my account. But most of my core are longer term holdings I am holding for specific targets. I’m getting to the point soon where I may put the cake in the oven and let it bake for 18 months and not touch it. There will be an opportunity for me to maybe trade 5% of my account for some income, but I believe we are in the early stages of a lot of these miners going 10-100x.
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