Best of the Week
Most Popular
1.The Greatest Stock Market Crash Of Your Life Is Just Ahead… – Warns Harry Dent - GoldCore
2.Budget 2016: Borrowing, Lifetime ISA, House Prices, Economy, Syria, Brexit and Stocks - Nadeem_Walayat
3.Gold Price Intermediate Top - Clive_Maund
4.Brussels Terror Attacks, Death of the European Union, BrExit Wake up Call - Nadeem_Walayat
5.Stock Market Maybe This Time is Different? - Tony_Caldaro
6.UK House Asking Prices Break Above £300k! Housing Market Paralysis - Nadeem_Walayat
7.A Big Reason Why Silver Price Is Set To Soar - Hubert_Moolman
8.The Financial Crisis Has Just Begun; Is The American Dream Is Over? - Chris_Vermeulen
9.Gold Stocks Spring Rally - Zeal_LLC
10.GLX, GLDX, Baby Gold Bull Market Stillborn? - Rambus_Chartology
Last 7 days
Silver: The “Five Year Plan” and the Great Leap Forward - 28th Apr 16
Michael Hudson: The Wall Street Economy Has Taken Over The Economy and Is Draining It! - 28th Apr 16
AUD/USD - Trend Reversal or Just a Bigger Pullback? - 28th Apr 16
A Gold Revaluation Could Transform Your Financial Status - Overnight - 28th Apr 16
Monetary Policies Misunderstood - 28th Apr 16
Gold Bullion vs Gold Miners - 28th Apr 16
OECD Suggests BrExit Would Cut Net Migration by 1.2 Million by 2030 - 28th Apr 16
MP Naz Shah Punished for Tweets Made During Israel's Genocide of Gaza Palestinian People - 28th Apr 16
Global Recession in 2016 and Beyond - The Obvious Evidence - 27th Apr 16
Why Gold Bugs Need to Stop Listening to The Fear Mongers and Start Thinking for a Change - 27th Apr 16
BlackRock’s Fink: Fed to Raise Interest Rates by Quarter Point ‘at Best’ - 27th Apr 16
Gold More Productive Than Cash?! - 27th Apr 16
Donald Trump Will Fire Janet Yellen and Be Trapped - 27th Apr 16
Money Saving Gardening by Propagating Roses From Cuttings - Propagating Rose Plants Over 2.5 Years - 27th Apr 16
Facebook Censors Pro Trump and Negative Hillary News - 27th Apr 16
This is the Era of the Democrats and Your Taxes are Going Up - 27th Apr 16
Long Awaited Gold Price Breakout - 26th Apr 16
Crude Oil Price Double Top or Further Rally? - 26th Apr 16
Madness in the Crimex Gold and Silver Trading Pits - 26th Apr 16
Britain's Prospects: GBP and BREXIT - MAP Wave Analysis - 26th Apr 16
CRB, Gold, Oil, Cotton, Coffee - 7 Must See Commodities Charts - 26th Apr 16
Gold Price Target is $3,000 and Silver is $75 per Ounce - 25th Apr 16
Parameters for a Stock Market Sell Signal-in-the-making - 25th Apr 16
Stock Market Dangerous Divergence - 25th Apr 16
Gold Miners Nub is the Sweat of the Sun - 24th Apr 16
US Dollar Price Forecast - 24th Apr 16
Stock Market Upside Objective Reached - 24th Apr 16
Why Leftist Greeks have more reasons than Liberals to favour Entrepreneurship and Support Entrepreneurs - 24th Apr 16
The Dow Jones is a Catalyst for Misplaced Stock Market Optimism - 24th Apr 16
Why Russia Harasses U.S. Aircraft and Ships - 24th Apr 16
Stocks Bull or Bear Market Rally? - 23rd Apr 16
A Bright Future for Solar Power in the Middle East - 23rd Apr 16
Silver Commitments of Traders – Halloween is Arriving Early This Year - 23rd Apr 16
Good News, Bad News, Both Favor Gold And Silver - 23rd Apr 16
Mish's Sure Fire Proposal to End Japanese Deflation - 23rd Apr 16
Mish Shedlock: “EXCUSE ME MR. PRESIDENT, IS THAT A JOKE?” - 23rd Apr 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Catching a Falling Financial Knife

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

© 2005-2016 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

Catching a Falling Financial Knife