...in the last thirty years, the gold silver ratio has exhibited quite a bit of volatility. A higher ratio shows both gold strength and silver weakness. When the ratio declines-as it appears to be doing right now-it means silver is getting stronger. It should be noted that a declining ratio doesn’t mean the gold price is falling. It could mean that both metals are rising, but that silver is rising faster than gold.
Silver Is Leading
The price of gold and silver rarely move at the same rate. The reason for this outcome is that their respective demand is fundamentally different. To put it into economic terms, the demand for gold is inelastic, while that for silver is elastic. In other words, the demand for silver is very sensitive to changes in its price, while in contrast, the demand for gold is relatively insensitive to changes in its price.
The result is that in precious metal bull markets, the price of silver typically rises faster than the price of gold, and vice versa in precious metal bear markets.
The result is that in precious metal bull markets, the price of silver typically rises faster than the price of gold, and vice versa in precious metal bear markets.
Silver has been kicking sand in Gold's face the past four trading days. Often Silver will do this just prior to a top in Gold. Have we reached a top in Gold? NO! But no market goes straight up, and a "brief" rest for both metals has been warranted. I suggested in late January that February "could be" a frustrating month for the Bull camp, and that some consolidation was necessary to strengthen the Bull case. We won't know if that has occurred until the month comes to a close, but it's worth keeping an eye on. I note this particularly in the case of Silver...Buying "now" at these prices should be done with caution.
Why the rising gold price is a headache for G7
..."for almost a decade now central bank gold sales have been accompanied by higher gold prices, not lower," as the Bank of England can well attest. And if the G7 is looking to the IMF to sell, then it's reasonable to suggest that perhaps their own central banks have now sold as much they want -- or are able -- to. In any case, the United States would need to approve such sales, and has in the past opposed them.
So what should you do if the IMF does decide to sell? I imagine it'll be a good buying opportunity for the rest of us.
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