Final rally for equities, commodities in the lead and a final leg to gold?


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A macro view for stocks, commodities and gold

The title of the article is that of a man who asks one of several questions that I could ask, given the volatility of macroeconomic indicators from day to day, week to week. But as the FOMC heads into the sunset, that’s the scenario that seems like the most likely to me, given the current state of some of the indicators we’re tracking.

  • The yield curve is on a flattening trend that has begun to signal the beginning of the end for inflation trading since the flattening began last April.
  • The silver/gold ratio has failed to establish any sort of firm signal to support inflation trading since silver exploded with the unfortunate #silversqueeze promotion a year ago. This remains the case today.
  • The Canadian TSX-V index turned nominally bearish and never broke its downtrend against the senior TSX index. This is a negative signal for more speculative inflation trades.
  • The Baltic Dry Global Shipping Price Index is in the tank, so to speak, after peaking in October and falling 75% since.
  • Credit spreads are still intact, but one should watch the nominal junk bonds that are under stress.
  • Industrial metals are still up against the price of gold, a positive macro still intact, although The Copper/Gold ratio remains undecided and a potential warning.
  • Gold had exploded higher against US (SPX/SPY) and global (ACWX) stocks. As we noted in an NFTRH update at the time, it would be subject to a potentially severe pullback whether or not the ratio bottomed out. The pullback started on Wednesday (FOMC day, and who’s surprised?) and when gold bottoms out in equities, the macro will be flagged as quite bearish. For now, we are neutral in the short term.

With this macro context in mind, let’s update three areas, US stocks, commodities and gold.

American stock market

As stated on Monday, volatility is threatened. The VIX has risen impulsively and the fear is probably unbearable. A pullback is likely, and from that pullback decisions will be made regarding shorting stocks on an upcoming rally and/or positioning for a continued bull market. During Friday trading hours, we see that VIX seems to realize that it is being overdone.



However, as you can see above, the trend of VIX may change (upward). Try filtering out the spikes and watch the trends, best followed by the 50 and 200 day moving averages. The SMA 50 is already appearing and the SMA 200 is thinking about it.

Here’s a view of VIX versus Inverse SPX that we’ve used repeatedly to warn of upcoming market corrections, large and small. There is the VIX peak. If it does pull back, it may well retain its nascent uptrend after SPX Reverse Diverging Since October. A sharp pullback in the VIX could be an opportunity to turn bearish. It is a late cycle after all and that means that every market correction should be viewed as a potential doorway into a true bear market.


VIX and SPX reverse

Other sentiment indicators show investors in full fear mode, which is on the contrary bullish. For example, Ma & Pa (AAII) cannot be found. Newsletters (Investors Intelligence) have gone downhill, smart currency indicators are now buying the market, and idiots are busy selling fear. That doesn’t mean a bear market isn’t starting, but it likely means that even if it does, that stage is losing momentum on the downside and a bounce to play with the newly choppy bear would be appropriate.

Below is a chart that we often use in NFTRH to evaluate US indices. When SPX broke below the daily 50 SMA (blue line), a test of the 200 SMA was very likely. When it hit the October low, it opened up the prospect of a major top, whether filled or not. A bounce could well be a short-sell opportunity, although bears have seen that movie before, especially during Goldilocks-flavored yield curve flattens. So, a caveat.

All indices except the SOX made similar lows. Coming to the semis, the sector was overbought, overloved, and signaling a correction when highly rated and sexy leaders like NVDA and AMD started looking lousy in December. Overall, I expect a rebound, but also caution that three of the four indices now have markers (lower) that represent technical damage. A sentiment event like this may well inspire new highs to come, but the lows could also win out. Therefore, the opposite sentiment is positive in the short term, caution beyond that.

Another warning is that sometimes overly bearish sentiment becomes self-reinforcing, especially when the margin man calls. So, no assumptions, just probabilities. Should the market break through the red arrow lows, a crash might even be indicated. Alright, it’s easy now… first of all.

american stock market

US stock indices

Given that the US stock market has been the star of (contrary) sentiment for the past few weeks, I wanted to go into a bit more detail. When it comes to commodities and gold, not much has changed in our view, so let’s generalize some points that fit the current macro.


The long-standing target for the CRB index has been the resistance at 270+. We have been targeting this area since inflation trades resumed in 2020. With many less important and outlier commodities losing momentum or declining outright, the CRB finds itself with crude oil as the main driver. Oil, in turn, is being driven by more than inflation, with the drums of war beating, price manipulation still a factor and yes, the supply and demand pressures of economic recovery as well.

Ranking everything we think we know, consider that the CRB index has increasing risk the higher the index rises. While oil could grab headlines if it hits $100 a barrel, that would signal a big point of caution for the complex given that…


CRB index (monthly)

… CRB and inflation expectations travel similar routes and the latter weakens while the former follows its oil component higher.




Gold will need to see its “real” (commodity adjusted) prices start to rise before a negative macro is definitely indicated. Today, we are in a transition phase between the inflation created by the Fed and the disinflation that the Fed now wishes to see. When this becomes economically unsustainable, gold should strengthen against economically cyclical commodities.

This monthly chart (large image) shows two things…

Thing 1: Gold is bearish against cyclical commodities, as it has been since mid-2020.

Thing 2: The risk/reward ratio of gold versus commodities is excellent and is trending back.


Gold/CRB ratio

The gold mining industry will take advantage of this when the commodity (and stock market) adjusted prices of gold begin to rise as a result of the positive risk versus reward situation. . It’s a patience game.

The Gold/Oil chart tells the story from the perspective of gold mining product versus a key input to the cost of gold mining. This fundamental consideration is and has been bearish since mid-2020. Risk/reward? That’s a whole different story, and if you’re positioned to be an capitalist and not a victim, the reward side should show in the months to come. First, more inflationary bugs in gold may need to be emotionally forced to sell due to faltering inflation. It doesn’t make sense, but that’s how most gold stock traders seem to play it.


Gold/Oil Ratio

At the end of the line

Among the options open to a moving macro, don’t be surprised by a possible near-term rebound in equities, an impending top in the CRB index (to join some outlier commodities already outperformed) and a firm bottom in gold . Along with this last thing, a trough in gold mining fundamentals is expected if the cyclical macro peaks in tandem with a trough in gold.

I’m still waiting 2022 will be a golden year. Especially for those who are positioned to be able to capitalize. Cash is a position.


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