McClellan Financial Publications
MAY 3, 2018
There has been no more reliable technical ‘buy’ indictor for silver than an above-80 gold/silver ratio, and though it has dipped just below 80 (as it always has before once topping this level), it remains elevated and marks silver as historically undervalued relative to gold right now.
The ratio of gold prices versus silver prices is now up to the type of high reading that in the past 2 decades has marked an important low for both gold and silver prices.
The value of anything is always and in every case a ratio. Most often the units are expressed as dollars per ounce, dollars per bushel, dollars per share, etc. But expressing the price of an ounce of gold as being equivalent to 80 ounces of silver is perfectly legitimate.
We can understand the implications of the dollar price of something being expensive or cheap; it takes a little bit more energy to apply that same principle to such a comparison of the two precious metals’ prices, but it is still valid.
A high ratio like this says that gold is expensive relative to silver. But turning that around, it says that silver is cheap relative to gold. And there is information in that cheapness of silver.
Silver is actually the more speculative metal versus gold. I like to say that gold is the dog, and silver is the tail, wagging around a whole lot more wildly. When this ratio gets up to around 80 or above, it means that speculative fervor is at a minimum. Usually that means a bottom for gold (and silver) prices. But sometimes it can mark a point where both are poised for a big breakout move, as was the case back in 2003.
The period from late 2014 to present has seen this ratio stay between 65 and 85. This is the quietest range it has seen in years, implying that something big is brewing. The 8-year cycle says that it should be a big move upward.