Best of the Week
Most Popular
1.China Crash, Greece Collapse, Harbingers of Stock Market Apocalypse Forecast 2015? - Nadeem_Walayat
2.Gold Price Awaiting Outcome of Greece Crisis - Clive_Maund
3.Gold Price Peculiar 6 Month Cycles - Rambus_Chartology
4.Gold Price Just a Little Bit More - Bob_Loukas
5.8 Unprecedented Extremes Indicate a Stock Market Bubble in Trouble - EWI
6.Gold And Silver – Without Either, You Will Be Greeced - Michael_Noonan
7.Lies, Damned Lies and Statistics - James_Quinn
8.China Crash, Greece Crisis Harbingers of Stocks Bear Market? Video - Nadeem_Walayat
9.Gold and Silver Record Shorting - Zeal_LLC
10.Markets Big Deflationary Downwave Quick Reference Guide... - Clive_Maund
Last 5 days
The Fed Can't Stop the Commodity Bear Market - 1st Aug 15
Meet the Leader Who Turned Google Into a “Buy” - 1st Aug 15
The Greek Coup: Liquidity as a Weapon of Coercion - 1st Aug 15
Gold’s Amazing Resiliency - 31st July 15
Silver – A Century of Prices - 31st July 15
Demand for Gold Bullion Surges – Perth Mint, and U.S. Mint Cannot Meet Demand - 31st July 15
Reasons Why the Greek Crisis Will Only Get Worse - 30th July 15
The War On Cash: Why Now? - 30th July 15
Greece - The IMF Experts Flunk, Again - 30th July 15
Threat Of Cyber Warfare the “Other Reason To Own Physical Gold” Warns Rickards - 30th July 15
The 5 Biggest Myths and Lies about the Middle East - 30th July 15
Greece, Diversion, and the New World Order - 30th July 15
Ibuprofen Warning - The Pain Killer that can Kill You! - 29th July 15
More Ritholtz on Gold, and Another Response - 29th July 15
Crude Oil Price Is Lower – and You’re Richer - 29th July 15
U.S. Home Sales Market Is Dead – This Chart Proves It - 29th July 15
Greece- What Happens When Economists Talk Politics - 29th July 15
The Gold - U.S. House Prices Ratio As A Valuation Indicator - 29th July 15
Will Crude Oil Price Decline Continue? -Video - 28th July 15
Gold & Silver Money Has Devolved Into Debt and Plastic - 28th July 15
Buy and "Own Gold Krugerrands" Says Money Expert Jim Grant, Very Bullish on Gold - 28th July 15
How to Protect Yourself from China's Crashing Stock Market - 28th July 15
Quantum Geopolitics - 28th July 15
Gold Mining Stocks to Weather the Storm - 28th July 15
Stock Market Bulls Beware! - 28th July 15
Will Chinese Stock Market Crash Affect the US? - 27th July 15
Crude Oil Price Under $48! - 27th July 15
Are We Seeing a Trend Reversal with U.S. Interest Rates? - 27th July 15
How to Know When the Gold Bear Market is Over - 27th July 15
Gold Bear Market Phase III - 27th July 15
Silver Bull Hammer Buy Signal - 27th July 15
Gold Cracks Support and Plunges to New Lows - How Low Will Price Go? - 27th July 15
Commodity Markets Breakdown Of 2015 Is Now A Fact - 26th July 15
Gold Price at a Five-Year Low: Here’s What to Do - 26th July 15
Stock Market Primary III Inflection Point - 26th July 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stock Market Bubble in Trouble

What the Silver to Gold Ratio Tell Us About Silver’s Future Price Moves?

Commodities / Gold and Silver 2013 Aug 15, 2013 - 05:23 PM GMT

By: P_Radomski_CFA

Commodities

In our previous essay we focused on silver’s relationship with the general stock market. Today, we think it would be interesting to revisit the silver-to-gold ratio.  However, before we do that,  let's check the recent price action in silver and gold.

Yesterday, silver posted biggest six-day gains in 2 years. Today, in pre-market trading, the white metal climbed up once again and reached the highest level in a month as holdings in the world's largest silver-backed exchange-traded fund, the iShares Silver Trust (SLV ETF), rose to a four-month high.


According to Reuters, gold extended gains on Thursday to a three-week high on hopes the Federal Reserve may not scale back its commodities-friendly bond buying soon, and as holdings at the world's top gold-backed exchange traded fund (GLD ETF) rose for a second time in a week.

U.S. producer prices were flat in July, which could add to worries at the Federal Reserve that inflation is running too low, indicating the U.S. central bank might not end its stimulus until inflation (taking the official numbers into account) begins to trend higher.

What impact have the above had on the silver-to-gold ratio and, in consequence, on metals themselves? Let's take a closer look at the chart below to see how both precious metals are valued relative to each other. Perhaps this will provide some clues on future moves in them (courtesy http://stockcharts.com).

Silver’s outperformance might be something that you are already, correctly, wondering about. On one hand, it seems that silver can lead gold higher. On the other hand, the last few times that silver outperformed gold were right before sizable declines. When in doubt, it’s usually best to get back to the basics, and simply check what usually happened in situations similar to the one that we have right now.

The rally in the silver-to-gold ratio was significant enough to cause the RSI indicator based on it to rally substantially, moving above the 70 level. This meaningful sign could have some implications... but it doesn’t. We checked each case in the past 5 years when the RSI moved close to or above 70, and gold rallied in about half of cases and it declined in the other half. Consequently, there’s not much that we can infer based on silver’s recent outperformance.

We usually don’t bother you with things that are not meaningful, but this time we are making an exception. This is because it seems that there will be a lot of comments on silver’s current outperformance, and we want you to be able to compare them with what we wrote above.

There is one thing about the silver-to-gold chart that is indeed meaningful, and that’s the comparison of the situation that we have now with what we saw in September 2008 right before the final plunge. Back then, the silver-to-gold ratio moved higher during the corrective upswing (before the decline continued) and the size of the rally was quite similar to what we have seen recently. Consequently, the very recent strength in the white metal does not invalidate the similarity between now and 2008, but rather confirms it.

This means that we shouldn’t say that silver’s strength is really a sign of a bottom. In fact, the long-term resistance line hasn’t been broken, and the trend remains down.

Summing up, the recent move in silver looks promising. However, we saw similar action during the only decline that is similar to the current one – and this action was right before the final, huge plunge. Silver is acting particularly strong, but it turns out that its performance relative to gold is also in tune with what happened in September 2008. Consequently, silver’s outperformance does not indicate higher precious metals prices – at least not yet.

To make sure that you are notified once the new features are implemented, and get immediate access to our free thoughts on the market, including information not available publicly, we urge you to sign up for our free gold newsletter. Sign up today and you'll also get free, 7-day access to the Premium Sections on our website, including valuable tools and charts dedicated to serious Precious Metals Investors and Traders along with our 14 best gold investment practices. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

Przemyslaw Radomski, CFA

Founder, Editor-in-chief

Gold & Silver Investment & Trading Website - SunshineProfits.com

* * * * *

About Sunshine Profits

Sunshine Profits enables anyone to forecast market changes with a level of accuracy that was once only available to closed-door institutions. It provides free trial access to its best investment tools (including lists of best gold stocks and best silver stocks), proprietary gold & silver indicators, buy & sell signals, weekly newsletter, and more. Seeing is believing.

Disclaimer

All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History