Is The Industrial Metals Surge A Sign Of Growth In Economy, Market? / Via Dana Lyons’ Tumblr / Dec 1, 2016 2:51 PM

Industrial metals are attempting to break their relative downtrend versus precious metals; that has historically been good news for the economy and stocks.

There are few better illustrations of the post-election trade, thus far, than the dichotomy between industrial metals and precious metals. The illustration is especially vivid when combining the performance of the 2 groups into a single price series. And while it seems that many folks on financial social media have taken to the practice of gratuitously lumping 2 seemingly disparate securities into a meaningless ratio chart, in this case there may be some merit. First, however, take a look at how the ratio between the SP GSCI Industrial Metals Index and the SP GSCI Precious Metals Index is hitting a potentially critical juncture right now.

Specifically, the ratio has essentially been in a descending triangle since 2009. That is, the Industrial Metals have been making lower highs and horizontal lows versus precious metals. In a conventional single issue chart, this pattern would carry negative connotations, i.e., it would suggest a likely eventual breakdown below the lows. If that same interpretation holds here, then Industrial Metals should continue their under-performance relative to precious metals so that the ratio moves to new lows.