Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
Will Biden’s Neo-Populist Economic Doctrine Support Gold? - 25th Sep 21
Markets Deflationary Winds Howling - 25th Sep 21
Crude Oil Price Piercing the Sky: Where Will We See the Black Gold by Xmas? - 25th Sep 21
Cryptocurrency policy choices and consequences - 25th Sep 21
The Next Emma Raducanu UK Tennis Star Pleasing the Crowds at Millhouses Park Sheffield - 25th Sep 21
Stock Market Rescued by the Fed Again? - 24th Sep 21
Are Amazon Best Cheap Memory Foam Mattresses Any good? Bedzonline £69 4ft Small Double ECO Example - 24th Sep 21
Evergrande not a Minsky Moment - 24th Sep 21
UK Energy Firms Scamming Customers Out of Their Best Fixed Rate Gas Tariffs - 23rd Sep 21
Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Should School Children be Jabbed with Pfizer Covid-19 Vaccine To Foster Herd Immunity? - UK - 23rd Sep 21
HOW TO SAVE MONEY ON CAR INSURANCE - 23rd Sep 21
Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
Trading Crude Oil ETFs in Foreign Currencies: What to Focus On - 22nd Sep 21
URGENT - Crypto-trader event - 'Bitcoin... back to $65,000?' - 22nd Sep 21
Stock Market Time to Buy the Dip? - 22nd Sep 21
US Dollar Bears Are Fresh Out of Honey Pots - 22nd Sep 21
MetaTrader 5 Features Every Trader Should Know - 22nd Sep 21
Evergrande China's Lehman's Moment, Tip of the Ice Berg in Financial Crisis 2.0 - 21st Sep 21
The Fed Is Playing The Biggest Game Of Chicken In History - 21st Sep 21
Focus on Stock Market Short-term Cycle - 21st Sep 21
Lands End Cornwall In VR360 - UK Holidays, Staycations - 21st Sep 21
Stock Market FOMO Hits September CRASH Brick Wall - Dow Trend Forecast 2021 Review - 20th Sep 21
Two Huge, Overlooked Drains on Global Silver Supplies - 20th Sep 21
Gold gets hammered but Copper fails to seize the moment - 20th Sep 21
New arms race and nuclear risks could spell End to the Asian Century - 20th Sep 21
Stock Market FOMO Hits September Brick Wall - Dow Trend Forecast 2021 Review - 19th Sep 21
Dow Forecasting Neural Nets, Crossing the Rubicon With Three High Risk Chinese Tech Stocks - 18th Sep 21
If Post-1971 Monetary System Is Bad, Why Isn’t Gold Higher? - 18th Sep 21
Stock Market Shaking Off the Taper Blues - 18th Sep 21
So... This Happened! One Crypto Goes From "Little-Known" -to- "Top 10" in 6 Weeks - 18th Sep 21
Why a Financial Markets "Panic" May Be Just Around the Corner - 18th Sep 21
An Update on the End of College… and a New Way to Profit - 16th Sep 21
What Kind of Support and Services Can Your Accountant Provide? Your Main Questions Answered - 16th Sep 21
Consistent performance makes waste a good place to buy stocks - 16th Sep 21
Dow Stock Market Trend Forecasting Neural Nets Pattern Recognition - 15th Sep 21
Eurozone Impact on Gold: The ECB and the Phantom Taper - 15th Sep 21
Fed To Taper into Weakening Economy - 15th Sep 21
Gold Miners: Last of the Summer Wine - 15th Sep 21
How does product development affect a company’s market value? - 15th Sep 21
Types of Investment Property to Become Familiar with - 15th Sep 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

ALERT: Gold-to-Silver Ratio Spikes to Highest Level in 27 Years!

Commodities / Gold and Silver 2018 Sep 11, 2018 - 01:32 PM GMT

By: Jason_Hamlin

Commodities

The gold-silver ratio has been one of the most reliable technical ‘buy’ indictors for silver, whenever the ratio climbs above 80. The gold-to-silver ratio has now spiked above 85, which is the highest level of this entire 18-year bull market! In fact, you have to go back 27 years to 1991 for the ratio to be higher than it is today. Amazingly, the ratio is currently higher than it was at the depths of the 2008-09 financial crisis (circled in the chart below).


The gold-to-silver ratio is a powerful trading signal that can help to identify buying or selling opportunities in the precious metals sector. The ratio represents the number of silver ounces it takes to buy a single ounce of gold. It might sound simple, but this ratio is more powerful than it may seem at first blush.

Historic Ratios for Comparison

The ratio of silver to gold in the earth’s crust is 17.5:1. In Roman times, the price ratio was set at 12 to 1. In 1792, the gold/silver price ratio was fixed by law in the United States at 15:1, which meant that one troy ounce of gold was worth 15 troy ounces of silver; a ratio of 15.5:1 was enacted in France in 1803. The average gold/silver price ratio during the 20th century, however, was 47:1.

Over the past 20 years, the ratio has averaged right around 60:1. Thus, the current ratio of 85 is very high historically and nearly 60% above the 20-year average. The ratio is signaling that silver is extremely undervalued relative to gold at this point in time.

The all-time high for the gold-to-silver ratio occurred in February of 1991, at the height of an economic Recession. The Recession of the early 1990s lasted from July 1990 to March 1991 and was driven by a restrictive monetary policy and Iraq’s invasion of Kuwait in the summer of 1990. The latter drove up the world price of oil, decreased consumer confidence, and exacerbated the downturn that was already underway.

Take a look at the historical chart for the gold-to-silver ratio for perspective on just how high it is today at 85…

In the past, the gold-to-silver ratio spiked higher during times of economic instability or Recession (see grey shaded areas). This makes sense as gold is generally viewed more strongly as a safe-haven asset than silver and institutional investors move funds primarily to gold (or dollars) for safety. Furthermore, nearly 50% of silver’s demand is industrial, so economic contraction would impact the price more severely.

The silver price falling more rapidly than the gold price or climbing more slowly than the gold price increases the ratio. Put simply, it takes an increasing number of silver ounces to buy a single ounce of gold during these periods.

Yet, the current gold-to-silver spike is happening absent a major crisis, as economic growth picks up and major stock indices hit new all-time highs. It looks a little reminiscent of the period from 1982 to 1987, leading up to the Black Monday stock market crash. The ratio also rose from 1988 to 1990, again leading into a major stock market correction.

Is the Current Spike in the Gold/Silver Ratio Forecasting Another Stock Market Crash?

The ratio typically spikes to extreme levels during the depths of an economic crisis or leading up to a significant correction in the equity markets. The stock market is currently very robust and enjoying an unprecedented 9-year bull market with gains in excess of 300% for the S&P 500 or 400% for the NASDAQ.  So the spike is not driven by a crisis that already exists, increasing the odds that we are quickly approaching a major correction in the markets.

Why else would investors be favoring gold so strongly over silver during a time of healthy economic growth?

The fundamental supply and demand numbers do not support gold’s outperformance versus silver. Gold demand fell by 7% in 2017, while silver demand fell just 2%. Supply for both gold and silver fell 4% in 2017, according to estimates by the World Gold Council and Silver Institute.

Silver Eagles Sell Out at U.S. Mint After Strong Demand in August

It is hard to know for sure if the gold/silver ratio has peaked, but some people appear to be taking advantage of the low silver prices lately. The U.S. Mint Sold 1,530,000 American Silver Eagles in August, the most in a single month since 2015! In fact, demand has been so strong that the U.S. Mint recently reported that they have sold out of 2018 American Silver Eagles.

“This is to inform you that due to recent increased demand, the United States Mint has temporarily sold out of its inventories of 2018 American Eagle Silver Bullion Coins.

All orders received prior to this communication shall be honored.

The United States Mint is in the process of producing additional 2018 American Eagle Silver Bullion Coins. We will make these coins available for sale shortly.”

How to Profit from the Gold-to-Silver Ratio Extreme

The bottom line is that silver is currently very undervalued relative to gold. This sets up an opportunity to buy silver and sell gold, potentially via a pair trade using the highly liquid gold and silver ETFs. Those looking to add to physical bullion investments might consider shifting their purchases to silver at this point. We also see opportunities for mining stock investors to profit from this extreme in the gold-to-silver ratio, which we covered in the latest edition of The Contrarian Report.

By Jason Hamlin

http://www.goldstockbull.com/

Jason Hamlin is the founder of Gold Stock Bull and publishes a monthly contrarian newsletter that contains in-depth research into the markets with a focus on finding undervalued gold and silver mining companies. The Premium Membership includes the newsletter, real-time access to the model portfolio and email trade alerts whenever Jason is buying or selling. Click here for instant access!

Copyright © 2018 Gold Stock Bull - All Rights Reserved

All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. The information on this site has been prepared without regard to any particular investor’s investment objectives, financial situation, and needs. Accordingly, investors should not act on any information on this site without obtaining specific advice from their financial advisor. Past performance is no guarantee of future results.


© 2005-2019 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