Silver Is Inexpensive Says the Gold to Silver Ratio

The gold to silver ratio tracks the degree to which silver is expensive or inexpensive compared to gold.  Since silver prices move too far and too fast compared to gold prices, the ratio drops in silver bull markets and increases as silver corrects lower.

This graph shows the ratio over the past 27 years.  Note the recent high in the ratio after silver and gold were “bombed” in 2008, and the recent low in the ratio when silver peaked in August of 2011.

Gold_to_Silver_ratio_1987_2014

gold to silver ratio from 1987 till 2014

After the silver price peak in 2011 it fell to a low in June 2013 and a double bottom low in December 2013.  The ratio is currently about 66 – at the high end of the 27 year trend.

What this proves:  Nothing.

What it strongly suggests: 

  • Silver has been correcting for over three years.  It could rally at any time.
  • Silver prices are currently LOW compared to gold prices – the ratio is at the high end of its 27 year trend channel.
  • Silver prices fall faster and rally more rapidly than gold prices.  When the price of silver finally takes off it will push the ratio much lower – perhaps to 20 or 30.
  • Many other indications (not shown here) also suggest silver is too low, over-sold, and ready to rally.

Investor demand for silver bars and silver coins is strong and increasing.  The High-Frequency Traders can suppress the price for only a limited amount of time.  I think silver prices will be higher by the end of 2014 and much higher by the next US presidential election.

The pieces of paper we mistakenly call money will become less valuable in the years ahead.  Take this opportunity to convert some paper currency to physical silver while the High Frequency Traders are gifting us with artificially low prices.

You might also find value in:

Silver in the Dead Zone of Disinterest
Silver Was Not in a Bubble in 2011

 

GE Christenson  |  The Deviant Investor

Receive these articles per e-mail

Subscribe for the free weekly newsletter and receive 3 papers about physical precious metals investing