The continuing upward trend in the gold/silver ratio (continuing weakness in silver relative to gold) is not in conflict with the view that gold commenced a cyclical bull market last December and is working its way through a lengthy basing process. Here are the details:
The above introductory comments are edited excerpts from an article* by Steve Saville (speculative-investor.com) entitled Gold vs Silver during Precious-Metals Bull Markets.
Saville goes on to say in further edited excerpts:
It is widely believed that:
- silver outperforms gold during bull markets for these metals, but that’s only partially true.
- silver tends to achieve a greater percentage gain than gold from bull-market start to bull-market end. That’s true.
- silver tends to do better during the final year of a cyclical bull market and during the late stages of the intermediate-term rallies that happen within cyclical bull markets.
However, the early stages of gold-silver bull markets tend to be characterised by relative strength in gold…[as illustrated in] the following long-term chart of the gold/silver ratio [in which] the boxes labeled A, B and C indicate the first two years of the cyclical precious-metals bull markets of 1971-1974, 1976-1980 and 2001-2011, respectively.
- Clearly, gold handily outperformed silver during the first two years of each of the last three cyclical precious-metals bull markets that occurred within secular bull markets.
Therefore, while silver’s recent weakness relative to gold certainly doesn’t guarantee that a new cyclical bull market began last December, it is not inconsistent with our view that a new bull market began at that time.
The above chart indicates that this year’s continuing upward trend in the gold/silver ratio (continuing weakness in silver relative to gold) is not in conflict with the view that gold commenced a cyclical bull market last December and is working its way through a lengthy basing process.
What about silver’s recent break to a new bear-market low in US$ terms? Does this negate the cyclical gold bull market view? The answer is a qualified no. Silver’s breakdown is definitely not, in itself, a reason to believe that the metals are immersed in an extended basing process, but it is also not unprecedented for the early part of a cyclical gold bull market.
As evidence of the above, we present the following chart showing how gold and silver performed during 2000-2004. Notice that:
- gold made its ultimate bear-market bottom (and commenced a new cyclical bull market) in February of 2001, but
- silver didn’t make its ultimate bear-market bottom until November of 2001.
Silver’s performance in November of 2001 is another example of a long-term decline ending soon after an important support level is breached.
Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.
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