Silver Buy Signal – 2016

The gold to silver ratio has been used for years to indicate buy and sell zones in both gold and silver. Why?

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  • At BOTTOMS in both gold and silver, based on 40 years of history, silver prices have fallen farther and faster than gold. Hence the gold/silver ratio reaches a relative high.
  • At tops in both gold and silver the ratio is often low since silver rises more rapidly than gold. As Jim Sinclair says, “silver is gold on steroids.”

Examine the following graph of the gold to silver ratio (monthly data) for the past 40 years. I have circled the six most extreme highs in the ratio with green ovals.

B-gold silver ratio-Updated

At 5 of 6 extremes in the ratio silver was at or near a long term bottom. The one minor exception was when silver bottomed in November of 2001 at $4.01 and the ratio peaked later in May 2003. Otherwise the ratio was quite accurate at indicating major silver lows.

For more confirmation, assume a silver buy signal occurs when an extreme in the gold to silver ratio has been reached, and the weekly silver price closes above its 5 week moving average.

Monthly Ratio Extremes Silver (weekly) closes above

(green ovals above) 5 week MA

June 1982 July 2, 1982

August 1986 September 5, 1986

February 1991 March 8, 1991

May 2003 April 11, 2003

November 2008 November 28, 2008

February 2016 January 29, 2016

The six major highs in the gold to silver ratio are marked above with green ovals, and also marked below on the log scale chart of COMEX silver. Note that 5 of 6 price lows were accurately indicated by the ratio highs, with the November 2001 price low being a minor exception.

B-Silver Monthly

SO WHAT?

Using the above simple analysis, silver hit a multi-year low in December 2015 and has confirmed that low by closing above its 5 week moving average AND registering a gold to silver ratio slightly above 80, the highest in about 20 years and the most extreme peak since the 2008 crash lows in gold and silver prices.

Silver hit a low on December 14, 2015 at $13.61. The price on Feb. 24, as this is written, is $15.43, nearly $2 higher. Of course the paper silver market will flop around as it is managed by High Frequency Trading but the ratio provides more evidence that a silver bottom occurred about two months ago.

Note the logarithmic lines on the silver price chart. The lines are somewhat arbitrary but roughly represent a lower bound, a middle trend-line, and an upper blow-off line. The middle trend-line passes through $25 in 2016 and the red line shows that $50 silver is one good rally away. We will see $50 silver, perhaps in 2017.

Stacking silver makes sense – silver thrives and paper dies.

BOOK-who-killed-dr-silver-cartwheelFor more information on silver demonetization and possible future prices for silver, read my novel “Who Killed Doctor Silver Cartwheel?”

Gary Christenson
The Deviant Investor
www.gechristenson.com

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  • gdaym8

    I can’t believe I’m the first to comment. Does this mean no one else has read this article yet?

    Look, I’ve owned silver (and some gold) for a long time. I bought most of mine really, really low-$5-$18/ounce, silver that is. I buy mostly coins and bars that interest me as a COLLECTOR first and as an investment second. I’ve come to the realization that it really doesn’t matter what the price in USD’s per ounce is. When the USD index goes down the price of silver goes up (a little). So, it takes a few more of those USD’s to buy in. See? It really doesn’t matter. Silver should NEVER be looked at as an investment. It’s an alternative and insurance. If the price should go back up to say around $40/ounce USD, I can predict a LOT of you silver bugs will be selling. That’s not wise, not wise at all. Why? Because that would mean the USD index has gone way down. So, why would you sell silver when the USD index has gone down? Those dollars you got for selling your silver have become to be worth a lot LESS than they were when silver was at $15/ounce. Get it? Precious metals are meant to be held, for a long, long time. In some cases passed on to your heirs. So stop worrying what the price per ounce is (it’s manipulated anyways). Just own it and enjoy it and hope it never gets to the point that that is all you have to buy goods and services. That’ll mean things have gotten really, really bad.

    On an interesting note. The night that silver (and gold) tanked, on a Sunday night. It was that exact same night that they (our government) announced that they had killed Bin Laden. Make of it what you will but that was the night that I realized that it really doesn’t matter what the price per ounce is anymore…………………………

  • westmichman

    Well put, gdaym8, and I agree with all you said.
    Many here do read the articles but may feel they have little to add.
    Obviously, that is what I just did here! But I wanted to comment anyway
    if only to show solidarity with good thinkers like you.

  • Crab

    how come Michael noonans articles are no longer published weekly on this site. I miss his stuff its always a good read and uplifting.