Rambling interlude: Gibson’s paradox and the way to the silver/oil ratio

Yesterday we commented on what we believe is a variation of Gibson’s Paradox expressed in the formula copper/yield=gold/dollar.

These are charts from Friday.

copper/10-year yield ratio

gold/dollar ratio

If I read these charts correctly, and there is nothing I like worse than in engaging in day-by-day analysis, copper/yield just broke through a key level last week, confirming the gold/dollar ratios move to the upside. I cannot divine charts like these with all the tools of technical analysis, so I am especially keen on P&F charts, as you may have noticed, but if like me, you are waiting for gold weakness, I would look for confirmation in charts like these, and at the moment, they suggest to me that gold is not yet done with its run. Keeping an eye on how gold/dollar relates to its moving averages might be a key indicator. Even when gold dropped in late 2008, it never violated the 200-week moving average, and since the recovery again, it has stayed above the 50-week average. Copper/yield has been more volatile, but has managed to stay above the 50-week average since the recovery.

In any case, while working on these charts last night, I got it into my head to start fooling around with oil again, and I came up with the following, which I am still not sure of.

copper/dollar ratio

oil

oil/30-year yield

I don’t think we can take much more from these charts other than that there are have been a clutch of commodities rallies over the last two years. Like me, you won’t be satisfied until you have seen some P&F charts and some cross-checking through overly simplistic equations.

copper/dollar ratio

oil/30-year yield ratio

As I said before, pitting two bullish commodities against two bearish instruments or indices is bound to create this kind of vague similarity. The key is to see if the other variations implied by the comparison of these two ratios hold up as well. In this case, oil/copper=yield/dollar. And, the odd thing about this formulation s that it almost directly contradicts what we found before, that oil/copper=dollar/yield.

If anything, then, for additional context of the gold/dollar=copper/yield formula, we should look to the oil/dollar ratio, but the copper/dollar vs oil comparison does not seem grounded in any fundamental market relationships.

oil/dollar ratio

On the other hand, having noted a general similarity between gold/copper and silver/oil over the course of the last three decades, it might be useful to keep the oil/yield and silver/dollar ratios in mind.

The oil against the 30-year is above. And, here is silver/dollar.

silver/dollar ratio

I think, though, that it is time to focus on what is behind the differences and similarities between gold/copper and silver/oil, which I think will probably be the theme of my next post, although I am skeptical that we can make any headway.

dollar yield ratio

gold/copper ratio

silver/oil ratio

The question, to be precise, is why—assuming that generally dollar/yield=gold/copper=silver/oil—why does gold/silver=oil/copper generally rather than gold/silver=copper/oil?

gold/silver ratio

oil/copper ratio

It must mean something.

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