During bull markets for precious metals, silver tends to lead. Similar to small caps, it adds “beta” when bulls are in control. To measure this aspect, investors can look at the ratio of Silver to Gold. When this ratio is heading higher, it’s bullish. Lower is bearish.
The original article has been edited here for length (…) and clarity ([ ])
In the chart below, I look at the last 20 years of the Silver Gold ratio. Several advances started from a critical support line at (1). As well, the ratio has formed a bullish falling wedge pattern (2) and looks to be on the cusp of breaking out of the pattern (3).
Silver/Gold Ratio Chart – 20 years
(Click on image to enlarge)
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The majority of analysts maintain that gold will reach a parabolic peak price somewhere in excess of $5,000 per troy ounce in the next few years. Given the fact that the historical movement of silver is 90 – 95% correlated with that of gold suggests that a much higher price for silver can also be anticipated. Couple that with the fact that silver is currently greatly undervalued relative to its average long-term historical relationship with gold and it is realistic to expect that silver will eventually escalate dramatically in price. How much? This article applies the historical gold:silver ratios to come up with a range of prices based on specific price levels for gold being reached.
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The gold/silver ratio (the price of gold divided by the price of silver) has touched 80 a few times over the past 25 years but the number of days one has been able to buy silver while the ratio is above 80 has been few and this is calendar days, not trading days. This is highly actionable information.
It’s Economics 101. Price works to balance supply and demand. Limited supply causes higher prices; higher prices help curb demand…[and] that equation is playing out right now in the silver market. Mined silver supplies have been drying up over the past few years, while silver prices have climbed 20% in the same time frame…
Silver has often rebounded nearly 100% within 12-15 months after bad and long bear markets. History says Silver is ripe for a similar move over the next 12 to 18 months.
Silver is now rarer than gold and will be for all of eternity. From this point forth we work from current silver production alone and, from this point forth, demand will outstrip production without exception. Can you imagine what that means for the future price of this, indeed, precious metal? Forget about the popular expression: ‘Got gold?’ The much more important – and potentially more profitable – question to ask these days is, ‘Got silver?’
Silver in early 2018 is inexpensive compared to M3, National Debt, government expenditures, the Dow and gold.
Could the long-term trend in metals be about to change?