Silver to Gold Ratio as a Timing Indicator

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Gary Christenson - Deviant Investor

We all know the silver to gold ratio is important.

• The ratio is low at silver lows, and high at silver highs, because silver both rallies faster and falls deeper than gold.

• The ratio has been erratic over the past 40+ years but the highs and lows approximately mark turning points in the silver and gold markets.

• For more detail, read another article I wrote: Silver to Gold Ratio: 27 Years of Data.

 

 

TIMING:

1. Take the weekly silver to gold ratio.

2. Plot the 21 week Relative Strength Index (RSI) of the ratio. This index is normalized from a low of zero to a high of 100.

3. Examine the lows in the RSI of the ratio – all lows below 30.

4. Compare to lows in the price of silver.

F-Silver&RSI

 

CONCLUSIONS:

• Since 2008 the RSI of the ratio has made 7 important lows below 30 that were also matched with a decent bottom in the silver price. There was also a quickly reversed bottom in the RSI in May of 2013 but silver prices were still falling and showed no sign of a bottom until early July.

• The RSI of the ratio made another low under 30 on May 30, 2014 and turned higher on June 6, 2013. Silver prices look like they have also turned up. This is the 8th such low since 2008.

• The RSI of the ratio is quite good at picking lows in the weekly silver prices. Now looks like a low in silver.

• The RSI of the ratio is NOT good at indicating how big the rally will be. Example: Will silver rally from below $15 to $48 as it did starting in February 2010 or from $18 to $24 as it did starting in June 2013?

• The RSI of the ratio is NOT good at picking tops. Please use it only for picking bottoms in the silver market.
 
 
Will silver rally this time for #8 of 8? I don’t know but silver has been beaten down for over 3 years, the S&P has rallied for over 5 years, and both markets seem tired and ready to reverse.

Richard Russell has seen it all in his 90 years. This is what he thinks about silver.

I would much rather be long silver than long the S&P at this time. Stacking physical silver makes a great deal of sense!
 
GE Christenson
The Deviant Investor

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2 thoughts on “Silver to Gold Ratio as a Timing Indicator

  1. I have been all in precious metals since over a year ago, but I made the move a year too early and missed the continued bubble in the S&P. Now I have been suffering the agony of Gold trying to make up its mind about resuming its bull market. I had been very patient to this point with complete confidence that we are repeating the gold boom of the 70’s, but now I am feeling the exhaustion and impatience of a market that keeps making false moves to the upside then fails repeatedly. Everything since Obama was crowned jester King has been wrong about the markets. Few if any predicted the sock-it-to-me-crash of 2008 and we all suffered. Is this year going to be another well timed market crash coincidental to a critical election? It makes me wonder if there is any point in investing at all with the robber barons in charge of the market and the Country.


    • Thanks for your comment. I have no guarantees, but it looks clear to me that an important shift is occurring. I think the weight of evidence indicates a bottom in gold and an imminent top in the S&P – if it has not already happened. I think you will be very pleased with gold and silver by the end of the year and certainly by the 2016 election.
      The Deviant Investor


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