Tuesday, March 27, 2007

Gold/Silver Ratio

The Gold/Silver ratio is a mysterious number Precious Metals traders come across often with nary a passing glance. In the simplest of terms it is a number that represents how many ounces of Silver one ounce of Gold will buy at prevailing spot prices. Used as a technical tool, the Gold/Silver ratio more probably represents the relative value of Gold vs. Silver.

The Gold/Silver ratio became of interest to me last fall when in December Precious Metals tanked hard and fast following the runup off of the Sept/Oct lows. What grabbed my attention was that the Gold/Silver Ratio at the December peak was identical to the peak in April when we tanked hard and fast...exactly the same at 45.03. "How bizzare", I thought. Was this a coincidence, or perhaps a hidden signal that an interim top was at hand? I made a note of it for the future. And sure enough the future came quickly...The week of February 20th the Gold /Silver ratio reached 44.73 and...Gold and Silver tanked hard and fast. Wow, what does this mean? To be honest, I'm still trying to figure that all out... But, I'm convinced of this: Gold and especially Silver will launch skyward when 45 on the Gold/Silver Ratio is in the rearview mirror.

On the weekly chart of the Gold/Silver ratio above, it is interesting to note that each time the ratio has retreated to it's 50 week moving average a bottom in silver has occurred and an excellent buying opportunity surfaced. Could we be staring at an excellent buying opportunity in silver as we read this? Only time will tell, but recent history seems to be telling us that we are.

Please click on the chart to enlarge. The chart of the Gold/Silver ratio may on first sight be a bit confusing. The chart is falling because as time has passed since the dawn of the Precious Metals bull in 2001, The price of Silver relative to Gold has fallen. That is, as the price of silver has risen along with the price of gold, you can buy fewer ounces of Silver with one ounce of Gold.

These two articles I pulled from google go a long way in better explaining the Gold/Silver ratio. Both articles are back dated, but still relevant to today's ongoing bull market in Gold and Silver.

Silver Resistance: 13.36 / 13.54 / 13.67

Silver Support: 13.25 / 13.16 / 13.03


Gold Resistance: 668.50 / 670.30 / 674.50

Gold Support: 662.10 / 658.30 / 655.50

No comments:

Post a Comment