The Gold/Silver Ratio Indicator Never Fails; Silver Rallying Again

Seeking Alpha  ( Original )
JUN 14, 2018

As we recently predicted here (when silver was $16.40/ounce), here (when silver was $16.41/ounce), and here (when silver was $16.35/ounce), the gold/silver ratio topping 80 has once again proven to be an infallible buy signal.

The silver price has never failed to outperform gold once the gold/silver ratio hits that magic number of 80; once it does, silver has always rallied. As of this writing, silver is trading at $17.21/ounce at the gold/silver ratio has ticked down to 75.

But if history is any guide, this is just the start of silver’s outperformance. The three times the gold/silver ratio topped 80 in the past, silver’s worst performance going forward was a 40% rally. The other two times? It went up over 300% and 400%.

This is the best of savvy investment strategy; take a simple mathematical equation (the gold price divided by the silver price), and track historical price behavior. When relative valuations hit extremes and then revert to historical means, without fail, time and time again, we seek to buy at these undervaluation extremes and wait for the inevitable reversion.

In like fashion, when the stock market is more overvalued than it has ever been before, we don't get cute and try to figure out how much further the bubble can expand. We get out and wait for the inevitable crash.

That's why we’ve highlighted the silver opportunity again and again when the gold/silver ratio tops 80.

 

One of my favorite indicators to look at when assessing prospects for silver prices is the gold to silver ratio. This essentially shows how many ounces of silver one ounce of gold is worth.

Throughout recent history this ratio has bounced around between about 30 and 80. The lower end of this range has traditionally served as an indicator that a top to a gold/silver cycle is in and vice versa.

In March of this year the ratio hit over 81, this is actually slightly higher than the prior silver lows in 2003, 2008, and 2016. Each one of these points birthed significant rallies, although the 2016 one was stunted.

Nevertheless, from 2003 – 2008 silver nearly quadrupled, from 2008 – 2011 silver more than quintupled, and in 2016 silver surged by 40% in 6 months. What will 2018’s 81+ gold to silver ratio bring? It’s impossible to say exactly, but it could be epic.


ORIGINAL SOURCE: The Silver Rally Could Turn Epic As Inflation Continues To Climb by Victor Dergunov at Seeking Alpha on 6/14/18