A Crack Beneath the Surface?

Last week we laid out what we believe is one of the most important charts in all of precious metals right now: Silver relative to Gold, overlaid with Gold Miners relative to Gold.

Those intermarket ratios are sitting at pivotal levels, and what happens next will likely dictate the next major leg for the entire complex.

This week, we want to zoom in even further.

If we’re talking specifically about the miners, there may not be a more important chart right now than the Gold Rush Junior Miners Index relative to the Gold Rush Big Miners Index.

This is our risk-on/risk-off barometer within precious metal equities.

When this ratio is rising, capital is flowing into the more speculative, higher-beta names. That’s expanding risk appetite. That’s when bull markets accelerate.

When it’s falling, investors are rotating toward the larger, more defensive producers. That’s risk aversion creeping in beneath the surface.

Since late last year, this ratio has gone nowhere.

After peaking last year, we expected a consolidation before a resumption of the primary uptrend. Instead, the ratio has rolled over to fresh multi-month lows and is threatening to make a fresh leg lower.

That’s not what you want to see if you’re looking for a re-acceleration in speculative appetite.

On a relative basis, this is a yellow flag.

But here’s the key distinction: relative weakness does not automatically equal absolute weakness.

And in absolute terms, the miners continue to hold up remarkably well.