The Gold to Silver Ratio is Bullish for Both Gold and Silver

Examine the 30+ year graph of the gold to silver ratio – this is the Big Picture perspective.

The ratio moves from low to high and back to low in long term patterns. I have shown the large scale moves with red (up) and green (down) arrows.

How does the Gold to Silver ratio indicate future prices? Examine the chart (below) of the ratio and silver. You can see a negative correlation between the ratio and the price of silver (gold also but not shown). When gold and silver prices are high, such as in 2011, silver has moved up a much larger percentage than gold, so the ratio drops into the 30 to 50 range. When prices are low, such as in December of 2015, silver has fallen far more than gold so the ratio is high – near or above 80.

Since 2001 there have been three major highs in the ratio, which corresponded with LOWS in gold and silver prices. I have placed green ovals around the ratios when they exceeded 75 on the monthly data chart.

Date           Ratio      Gold Price     Silver Price

5/30/03          80.4        $364              $4.54

11/28/08        80.1        $816            $10.19

2/28/16          82.9      $1234            $14.89

Actual daily lows occurred in December 2015 at about gold $1,050 and silver $13.65 (ratio about 77).

When the ratio exceeds 75 and subsequently crosses below the moving average, a long term buy looks safe and profitable. This is not helpful for short term traders. But if you are a stacker, then buy gold and silver when the ratio has reached an extreme, such as 75 or greater, and is declining.

Note that the ratio as of May 31, 2016 was 75.9 and declining from a high of 82.9 reached in February 2016, using monthly data. Per the gold to silver ratio and 30 years of history, 2016 has been a good time to buy gold and silver. The daily prices for gold and silver bottomed in December 2015 and should rally for several, probably many, years.

But Could Gold and Silver Fall Further?

  • The Federal Reserve and other central banks could admit failure and “close up shop.” Okay, just kidding.
  • Governments of the world might choose to balance their budgets, pay down debt, and act in a peaceful and responsible manner, both politically and fiscally. Okay, just kidding.
  • Central banks could admit they are powerless to stop a deflationary implosion, agree to return to a gold standard, and watch $ Trillions of debt default, which might temporarily reduce gold and silver prices. Okay, a snowball’s chance in Death Valley in August …

There are few guarantees in life beyond death and taxes, but continued currency devaluations, increasing debt, and higher gold and silver prices seem inevitable. Act accordingly.

Bill Gross has mentioned a “supernova” explosion in the debt markets. If $10 – $40 Trillion in debt collapsed down to near its intrinsic value, the shock, panic, and fear could push gold and silver prices into the stratosphere. Act accordingly.

If the Fort Knox gold is gone … as I speculate in my novel “Fort Knox Down!” the prices for gold and silver could also rise spectacularly. Book is available at Amazon and gold and silver are available, for now, from the usual retailers.

Gary Christenson

The Deviant Investor

5 thoughts on “The Gold to Silver Ratio is Bullish for Both Gold and Silver

  1. ,,,,”Bill Gross has mentioned a “supernova” explosion in the debt markets. If $10 – $40 Trillion in debt collapsed down to near its intrinsic value, the shock, panic, and fear could push gold and silver prices into the stratosphere. Act accordingly.”

    This is not a rational conclusion. It is much more likely that there would be a great desire to hold cash or cash equivalents, if Mr. Gross is correct. This would mean stocks, collectibles, gold and silver, etc. are more likely to be liquidated than acquired. Dollars, which contrary to many analyst’s opinions, would actually become much more valuable. .

    • I do not agree. A crash in the bond market and/or a currency crash would support the gold and silver market. Probably not the stock market.

      But that is my opinion. We will wait for the crash to see what actually happens.

      The Deviant Investor

  2. The situation today is unique in the sense that all of the world is on paper money, with the Dollar being the reserve currency and all other currencies depending on the Dollar for their value. The elites of the world (except for a few countries like China and Russia) maintain their wealth in this paper system. It is therefore highly unlikely that the system will transform or collapse easily. It is in fact much more likely that the present system will be defended at all costs (including the possibility of a nuclear war). As a matter of fact, the Dollar system has shown a remarkable ability to adapt and to survive crises. In 1933, Roosevelt removed gold from circulation as currency and devalued the Dollar by 40% against gold. In 1971, Nixon completely decoupled the Dollar from gold opening the doors to the present system. It seems to me that the system will evolve further by abandoning paper cash so the possibility of withdrawing money from the bank will be denied. In the future, Dollars can be only held in digital form in bank computers. The only thing which we will be able to do is to transfer these “Dollars” from one computer to another computer. Physical possession of paper Dollars will be outlawed similarly as the possession of gold Dollars was prohibited by Roosevelt in 1933. If this hypothesis turns out to be correct, then I do not see any end to the suppression of precious metals prices, as a matter of fact, the price of all commodities can be suppressed forever. This road will take us to a system which was practiced in the former Soviet Union for over 70 years until the Russians got tired of this system and abolished communism in a bloodless revolution. For these and other reasons, I am not convinced that we will soon see a dramatic rise in previous metal prices.

    Regarding the gold to silver ratio,which is high right now, it is interesting to observe that the platinum to silver ratio is at an all time low right now. So either silver is overvalued against platinum or platinum is severely undervalued. The question is: does it make sense to take advantage of this anomaly by trading silver for platinum ? What do you think Gary ?

    • I will do some analysis on silver and platinum, but my belief is that silver is and has been money and platinum is primarily an industrial metal. Conclusion: silver is a better bet than gold and platinum over the next several years. I will do some analysis but my instinctive suggestion is save your silver. We shall see.
      The Deviant Investor

    • I think what your saying is the small elite that owns everything will sacrifice anything and anyone to preserve their illusion of wealth. Practically there is no real wealth unless there is a robust economy to value it against. We wont have it again for a while.

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