It may be a no brainer to some that Gold is more desirable than Silver. My wife does not need to look at a chart to know this for example. But that does not mean she is ready to put a trade on. The technicals of the Gold to Silver Ratio though say it is near time. The chart below shows Gold measured in Silver on a weekly basis back to the top it made in 2008. There are a few important areas to notice in the chart. First there is the 200 week Simple Moving Average (SMA). This is the green line that runs nearly flat moving between 55 and 60. It acted as support during 2009 and 2010 and then after a bounce in late 2011 as resistance until early 2013. The second thing to notice is the resistance around the 70 price level. The ratio popped over it briefly in 2009 and then twice in 2010, and recently it has acted as resistance in 2013 and just a few weeks ago. It is also the 61.8% retracement of the full move lower from 2008 to 2011. The take away: The range from 55-70 is an important one for this ratio.
Bullish Trend
Lets talk trade set up. Notice that the most recent approach to the 70 level came from a pullback to 56, staying within the range. This move from a higher low than the one in 2012 establishes a bullish trend. And it is supported by the momentum indicators, the RSI and the MACD. The RSI held above the mid line in the bullish range on the pullback and is making higher highs. The MACD bottomed near zero but more importantly is reversing higher and crossed up, also bullish. The set up is there for a break of the range higher over 70. You could trade this chart by buying gold and selling Silver against it on a break of the ratio over 70, staying in the trade as long as the ratio stays over 67.50. A target on a pop up and over 72.50 would be a retracement to the previous high at 93.73. If you do not trade futures, substitute the Gold and Silver ETF’s SPDR Gold Trust (ARCA:GLD) and iShares Silver Trust (ARCA:SLV) and divide all the numbers above by 10.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.