Macro Economic Clues Through the Metals Charts

Some metals are used to gauge the health of economy either at home or abroad or specific sectors. Others are used to to talk about inflation expectations. It makes no sense to put these long term concepts into the daily or even weekly charts of the price action for metals and hope to glean insights. These concepts play out over months not days or hours. Since it is less than two trading days from end of the June and the Greek austerity vote has passed, I am going to gamble on current monthly ranges for the major metals not being violated and see what we can learn looking at the monthly Futures charts using the Andrew’s Pitchfork.

Copper, $HG_F

Copper had a major run higher in 2009 and 2010 but peaked in January 2011 and has been falling. This working class metal, used as a barometer for building in the US and economic health in developing countries is now moving to the intersection of the bullish (blue) Median Line (ML) and bearish (orange) Upper Median Line (UML), which just happens to be at the all important level of 400 at July. If it follows the the blue pitchfork higher then we are likely to hear talk of a bullish world economy and the bearish orange pitchfork a weaker economy. It is currently undecided, like many economists. Hmm. Other factors like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicator suggest further weakness. But the price action could also be viewed as a bull flag after the move higher. Still no decision.

Gold, $GC_F

Sticking any kind of bearish pitchfork on Gold is a stretch at this point. If it holds the orange UML then it would exhibit more of a consolidation than a pullback, and finding the ML of the blue pitchfork would help bleed off some of the elevated RSI. Even if it drops to the blue ML it is still bullish. Does this mean that inflation is upon us or that fear will remain high. If you look at the 10 year rising trend line which covers periods of low inflation and moderate inflation, crisis and safety, you might determine that Gold is not a good indicator for these measure. But one constant over this period is the rise in world wide government debt. Perhaps there is some value there.

Silver, $SI_F

Silver is a bit of a cross over between Gold and Copper as it has some industrial use. The chart above shows the move lower off of the top in April and now through the blue UML. Should it continue lower to the blue ML would seem to indicate its value perceived more in industrial terms and less like Gold. It would also be a vote for a slowing in the industrial space. This move looks likely as the falling RSI and MACD support more downside.

Platinum, $PL_F

Platinum is a true industrial metal. It has been fading away from the blue ML towards the Lower Median Line (LML) and is now showing signs of a steeper fall designated by the orange pitchfork. Continued downside, supported by the falling RSI and MACD, could be viewed as a sign of slowing industrial sector.

So with just these four charts the macroeconomic view is for weakness in the industrial sector, and and global economies to be slowing, with the industrial sector slightly worse than the others. Expected continued debt expansion may lead to higher inflation and keep pressure on hard value currency substitutes. Who needs a macroeconomic model.

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