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In short, the answer is yes. That seems to be the case to some degree.
The reasons for this are roughly as follow.
From past analysis, the mining sector seems to be roughly correlated 50 percent to the underlying metal, and 50 percent to the SP 500. Obviously this varies over time because of related factors, lags and correlations, but it is not a bad rule of thumb.
Right now the SP 500 is underperforming the metals. I am showing the SP 500 compared to gold, because silver is in such a powerful short squeeze that almost everything is underperforming it.
In addition, the correlation of the miners to the SP 500 has been a little more variable of late because of the 'risk on, risk off' sector rotations. The miners seem to be affected greatly by this.
I have noticed in the past that the miners, particularly the juniors, tend to get their biggest moves near the end of tops in legs of the metals moves, playing a sort of 'catch up.' I have not done any rigorous analysis on that lately.
But it is important to note that the reason why the metals are moving is a significant factor on the miners. If it is a risk off flight to safety, chances seem to be good that the miners will underperform. If it is more of an inflation trade, the miners may catch up in relative valuations and their leverage seems to work in one's favor.
To make things even a little more complicated, various pair trades and arbitrages come in and out of fashion amongst the speculating crowd in the hedge funds, who swing a big stick on short term pricing these days. Long metals and short miners is a trade that temporarily distorts for example.
Someone just sent me this piece by my friend Dan Norcini and I think he makes some great points on the arb trades to which I allude above.
Again I have to caution that I have not done the kind of recent rigorous analysis on this that I have done in the past, because for my own purposes it is 'working' for me. Perhaps I shall have another look at it.
As a special note, I want to thank all the kind people who bring things to my attention by email. I cannot look at everything, and even if I may have seen it, I am always grateful, just a little less so perhaps if I have an active link to it on my site. lol.
I am busy making preparations for some special meals on the holiday and it has me on the run. Prime Rib, ham, turkey, fresh and smoked sausages, and all the sides, and even the children have been helping, learning along with the adults, with some special treats and cakes.
Try to remember the poor in these times, because many families are enduring their private hells and hardships, despite all the griping by those who imagine that the poor are lazy people living in luxury. I don't see many of them volunteering for that. If it were true, Goldman Sachs would be living in homeless shelters. People say, why doesn't God do something about this, why doesn't he help the poor and straighten these things out. Well, He did do something. He sent you.
Spring is in the air, and life is resilient. We are not in thrall to any morose doctrine, nor bound by hopeless despair. Let's remember that one of the early names for the Christians were 'the Easter people,' and hallelujah and our Father was their song. And this is our legacy, our life. Not the dried bones of those who are already dead, scuttling around in darkness, grasping for things and the lives of others, desperately trying to fill their emptiness. These are no great souls but the husks of men, destined to the trash, nameless, the leavings of Gehenna.
The tomb is empty and death is overthrown, and there is nothing for us there.
As a reminder, the Comex will have their gold and silver option expiration on Tuesday, April 26.
Due to a lax regulation of the markets by the CFTC, there are sometimes major price manipulation shenanigans associated with these events, and these sometimes during thinly traded periods of time.
Someone sent me this article. It makes a point about the calendar holidays which I had not noticed. Here is their follow up aricle.
Since much of the physical buying comes out of Asia, and most of the price manipulation seems to originate in London and New York, this could be interesting. Although the setup is there for a thin trade, it takes a look at the composition of the markets, and the actual details of the options and contracts held in balance to other things, in order to make any judgements.
I do know that quite a few specs are jiggy with their recent gains in silver. This makes a retracement possible if someone 'gets the ball rolling' as they say. On the other hand, I have seen fellows use option expiration to breakout metals and other instruments and beat the shorts mercilessly. It is hard to trade this sort of event reliably if one is not an insider.
I stopped trading on the Comex a few years ago, before I scaled back my general trading, out of sense of discouragement in the integrity of their markets. But it is hard to get away from it, since their trades feed into and affect so many other instruments like ETFs, etc. When one take a position in a short ETF like ZSL, for example, one is trading with the Comex by proxy I would imagine.
While I do not believe in 'hanging bankers' at all, I think some serious investigations, indictments, and prison terms for the guilty white collar criminals would do a great deal to stimulate the real economy by reining in the excessive fee-based taxes from the financial sector, and refreshing the price discovery and efficiency of the markets.
But the Obama Administration is reform adverse, especially while collecting its famous billion dollar campaign slush fund. You don't get that kind of money from the "Yes We Can" crowd. And most Republicans are unashamedly servants of the pigmen.
Here is a nice, concise analysis of the Obama Administration's policy from an interview with William K. Black:
Ryssdal: What about the argument, though, that the financial system is so fragile still, and these cases so complicated, that we can’t really tear things apart with substantive investigations and prosecutions because it will all fall apart again?
Black: Yeah, that’s an excellent point. We should leave felons in charge of our largest financial institutions as a means of achieving financial stability.
Ryssdal: See, that’s funny because I was expecting you to come back with — I don’t know, JPMorgan earned $5 billion last quarter. How shaky can they be?
I am now flat in my trading account, and am not sure about putting on trades for the holiday weekend.
I had quite a few questions on this topic of when to sell silver this evening, based on a comment I made with the normal gold and silver charts. I indicated we could see a pullback and consolidation, and it might be 'impressive.' I was thinking of support around 40, maybe 38.
Unless there is a liquidation panic as we saw in 2008 then I do not believe it will be much more profound than that.
Someone brought this interview on this very topic to my attention, and I include it here for your knowledge.
I have a lot of respect for Jimmy Rogers. He is an intelligent man and a real gentleman. I think there is wisdom and experience in what he says.
I own gold and silver in various forms, but have no plans to sell any bullion for the foreseeable future. I may hedge a little for short term trading corrections, but not actually sell it until the fundamentals change, because there is too much 'friction' is buying and selling bullion.
And even with non-bullion holdings, there is the bigger problem that once you have sold and lost your position in a bull market, it is often very hard psychologically to buy back in. It is natural to wish your decision to sell to have been 'right,' and sometimes so badly that your emotions will tend to distort your perception of the market, causing you to make mistakes.
Too often we see people who have sold their positions early making all sorts of foolish comments and dire predictions, trying to get other people to join them and sell, because misery loves company. I will listen to anyone's reasoned opinion, but too often these fellows just talk nonsense and are nothing more than a distraction.
There might be quite a bit more upside in silver, and that $100 is a respectable longer term target if the dollar does not 'turn into confetti' as Jimmy Rogers says.
Gold and silver are heavily tied to the fate of the dollar in some ways, and I do not yet see a clear path for the US to reform its financial house yet. The dollar denominated debt is the last of the great credit bubbles, and that means the bonds and the currency itself.
And yet the dollar is not the be all and the end all, and this is the sea change that so many are missing. Even without inflation the price of gold and silver would likely increase because of the growing demand in the developing world, which demands its own stores of value.
No, the US will not default per se. But they can sure engineer a de facto default through monetary inflation, which is what they are doing now. And they will never admit it, and take all sorts of pains to disguise it, because that is the whole point of it, to gracefully extinguish the debt without a formal devaluation or crashing the system.
I also think that gold and silver are making up for lost time, for the twenty year bear market during which their price was beaten down, held artificially low through central bank shenanigans.
Most institutions and individual investor are underweight precious metals, at a time when they are probably needed the most as insurance against currency and financial default risks.
I began trading stocks, bonds, and options in the stagflation of the latter 1970's in the aftermath of the great bear market, and vividly remember what it was like, and how people viewed inflation hedges like gold and silver, collectibles, coins, income averaging your tax returns for inflation effects. And this is not it, not even close yet.
When the inflation concerns catch some wind in their sails, there is nothing like it. The bulk of the people and unsophisticated investors are convinced that deflation is either here or imminent. So Bernanke has smooth sailing for some time yet.
Here is what Jimmy Rogers has to say.
- Eventually everybody's going to own gold, and then we'll have to sell our gold, but that's a long way from now.
- If triple digit silver happens this year then we'll have a parabolic move and we'll have to sell, and all parabolic moves end badly. I hope it doesn't happen, because I own silver and want to buy more.
- My hope for silver and gold and all commodities will go up for ten years in an orderly manner.
