PM Ratios Showing Silver, Miners Buying Opportunities

Chart 1: Gold vs Silver ratio recently went as high as 1 to 70 ounces

The following two charts are interesting to look at and observe from time to time. They give us two simple perspectives, the first is the total return of Gold, Silver and Gold Miners since the start of the secular bull market in 2000, and the second is the ratio of performance between these three major assets within the overall sector.

As recently as July, it took almost 70 ounces of Silver to buy 1 ounce of Gold. Essentially, Silver was trading at levels seen in early 2008 (around low $20 range), while Gold was well above its 2008 levels and trading a whole $400 more. Higher ratios have always been buying opportunities like in 1997, 2003 and 2008 - as Silver eventually starts outperforming again.

Furthermore, some traders would claim that during the ending phases of the secular bull market, Silver could outperform rapidly to the point ratio drops below 20. This was last seen in the 1980 blow off top, where the ratio dropped below 16 ounce of Silver towards 1 ounce of Gold.

Chart 2: Gold miners vs Gold ratio is reaching levels not seen since 2001

Turning our attention to Gold miners, I remain puzzled as to how traders constantly think negativity about this area of investment. They claim that Gold miners have constantly underperformed Gold forever and ever and ever. Negativity is really intense.

The chart above shows that as of August 2011 peak, measuring over of time frame of a decade, Gold was up almost 600% while Gold miners were up a huge 1800%. In other words, Gold miners outperformed Gold by about 3 times and actually went up an amazingly high 18 times in a period of 10 years.

Now, I do admit that the majority of the gains came in the beginning of the bull market and therefore I guess the reason the majority complain about Gold miners is because they actually missed the first major move.

The ratio above shows that Gold miners have underperformed Gold since late 2010. Moreover, the ratio is now reaching levels last seen in 2001 (almost at ratio of 1 to 6). Similar to the Gold/Silver ratio, the higher the reading the more oversold the overall sector is and closer we are to another major buying opportunity.