Tuesday, July 11, 2017

GOLD:SILVER Ratio and Gold and Silver Weekly Charts

The gold:silver ratio oscillates from the 40-ish level up to the 80-ish level and back again. From 2008 to 2009 the ratio popped from 40 to 80 and forecasted an outperformance of gold versus silver during that period which occurs. Both precious metals (PM's) drop but gold fell less than silver.

In 2009, at the elevated ratio tagging 90, you knew that silver would likely outperform gold going forward  on the longer-term basis and it does. From 2009 to 2012, the ratio falls from 90 to sub 35 and silver greatly outperforms gold as both PM's launch to the upside due to central banker money printing.

With the low gold:silver ratio in 2011-2012, you realize that gold will probably outperform silver going forward and sure enough, the ratio runs back to 80 in 2016 as both PM's tumble lower but gold's fall from grace is less severe than silver. The sideways brown channels show price stumbling around and the gold:silver ratio comes back up to print 80 again. What do you think will happen?

Going forward, say for the next one to three years, silver would be expected to outperform gold. This does not mean both metals will cruise higher. It simply means that if the PM's move higher, silver will outperform gold percentage-wise to the upside and if the PM's tumble lower, silver will not fall as much as gold.

One way to use the tool is to weight your precious metal positions accordingly. Say you allocate 10% of your holding in PM's and you only invest in gold and silver. The ratio chart tells you that going forward for the next couple years or more, with silver likely outperforming gold, it is likely more prudent to weight your silver holdings say at 70% to 90% versus 10% to 30% in gold. Of if you want to take less risk, and only own precious metals as a general hedge, you may want to have a split of 60% in silver and 40% in gold going forward. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.

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