Gold:Silver ratio approaches support

The relative values of gold and silver are a measure of risk aversion, akin to the VIX. Silver is largely an industrial metal and reflects appetite for commodities in general, whereas gold is owned as hard cash for safety.

Witness the premium silver fetched in the commodities mania of 2007 to July 2008, and the soaring value of gold in the panic last fall. Like the VIX, it registered a peak in October and November and did not confirm the equity lows in March. There is also a correlation in recent months between Gold:Silver and the US dollar index (only 3% bulls there yesterday, by the way).

We’re now a few points above a level where two major trend lines intersect, though the RSI and MACD are already in oversold territory. A quick, terminal spike in silver would complete the pattern nicely:


Readers know that I am a stomping dollar bull and precious metals bear at the moment. Gold bugs, take a chill pill — I’m all for a gold standard, and yes, gold will continue to outperform most other assets in this depression, but that doesn’t mean the metals aren’t overbought like everything else in this reflation/recovery mania. Possible spike tops notwithstanding, I expect both silver and gold to fall from here, and for silver to fall harder. I expect $14 within 6 weeks, followed by $12 early next year, and possibly even $8 in a year or two.

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8 thoughts on “Gold:Silver ratio approaches support

  1. Hi Mike,
    Indeed, i have been loading up on SLV since it was below 9 and kept on buying up to about 13. But it’s been rising exponentially in the past several weeks.
    But don’t you think that as usual, it might overshoot before getting back to more normal levels (in terms of historical averages)

  2. Sure, it could spike another buck or so here. Nice job on going long — I’d think about putting on a stop-loss or trailing stop if you think silver still has steam left, because when the run is over it could drop very fast.

  3. Yes, it required a lot of effort to bypass my fear when silver got below 10 and I was very fearful when placing those the orders. And unfortunately, I didn’t buy enough at those levels (for obvious reasons…). That’s why I added more in the 10,11,12 range.
    But i’d like to avoid getting out too early and Silver being so volatile, it’s a very tough call about where to put that trailing stop loss…

  4. Always is. The general practice is, after the first solid move in your direction, move the stop from tolerable loss to breakeven. As the market keeps going your way, after each sizable move tighten the stop to just beyond major resistance levels.

  5. Hi Mike,

    Robert Prechter recently wrote that the market might not hit bottom for another “five to eight years.” I’m trying to wrap my mind around that time line. If wave 3 down is supposed to be fast and furious, doesn’t that leave just waves 4 and 5 to go to hit bottom? Wave 1 down lasted about eighteen months; the rally of wave 2 might last 7 months or so, if forecasts are right. Does it make sense to you that the decline could drag on for another 5 to 8 years?


  6. Hi Bjorn. I think Prechter has been saying 2012 to 2016 lately. I’m not one to second guess him when it comes to such things, and it is certainly possible that this turns into a Japanese-type affair, albeit not quite as drawn out. 3 of 3 is supposed to be fast, but we could limp along in 4 of 3, and waves 4 and 5 of wave C for a long time.

    Real or gold values might continue to decline beyond the nominal bottom, also. I really don’t have a good sense of how this will play out, and I bet Prechter would admit the same. We’re both just convinced that the lows are years away and 60% or more beneath us.

  7. Right on SovSpec. I’m with you entirely and I’m heavily invested in physical Gold (this is a long term holding not to be traded until the Dow to Gold ratio reaches 2 or less)! Things just seem too much in synch and are falling in line with Prechter’s “dollar vs. everything else” inverse correlation. I think the rise in the U.S Dollar will be stunning. The 3rd wave down in stocks probably won’t take very long but the 4th wave may well take forever (a la Japan).


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