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Silver And Gold Do Not Always Move Together: The Silver To Gold Ratio

ByDragonfly Capital
AuthorGregory W. Harmon
Published 08/22/2012, 04:16 AM
Updated 05/14/2017, 06:45 AM
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There was much talk about Gold (GLD) and Silver (SLV) in my stream this past weekend. Several of the comments came to the view that if Gold breaks out higher, then Silver will follow. It turns out that is not always the case. In fact, from the ratio chart below, the price of Silver more than tripled in terms of Gold from 2008 to 2011 before falling back.

Now falling back to retest the 0.017 level in a descending triangle, it is set up for Gold to accelerate away from Silver on a breakdown. But the Relative Strength Index (RSI) is turning back higher with a Moving Average
SILVER-$GOLD CHART_1
Convergence Divergence indicator (MACD) that is crossing positive, another bullish signal. looking left sees that this ratio has been significant in mid 2009 and and the back half of 2007 as well. A hold here and movement back higher will likely re-challenge 0.02. Relative strength for Silver. But maybe more interesting is that the ratio of Silver to Gold is often viewed as a guide for the direction of the S&P 500.

The chart below shows the S&P in the solid black line against the Silver to Gold ratio. We last looked at this back on March 27, 2012 in The Curious Case of Silver, Gold and the S&P 500. There is quite a strong correlation. And if the break higher in the S&P 500 is believed then the bottom is in for the ratio. It does seem to be moving higher now. Relative Strength for Silver over Gold.
SILVER-$GOLD CHART_2
Disclaimer: 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.

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