Gold - Silver Ratio (Archive)

First published on 13 Nov 2006

Did you know that the price relationship between Gold and Silver is not fixed? It varies substantially. And it has predictive value too. As in different market environments, the value of Gold is perceived differently than Silver. Gold is perceived as an important crisis commodity. As fear replaces confidence, Gold increases in value relative to Silver. For example risks of economic and political upheaval. When the market risks are low Silver is preferred over Gold, as the white metal has many industrial uses and the consumption of Silver grows in a rising economy.

The last time the value for the ratio dipped below 1 was in 1997 and then the South East Asian crisis broke leading to a bounce back in ratio. And since 1984 the ratio has never been below parity. At this stage after 22 years the ratio is headed down below 1 again. Rather it is now ruling at sub 1 level. Now there are two ways to see it, one that we are in for more prosper times that we have not witnessed since 1984. If this is true Gold should continue to fall relatively to silver, or underperform silver. Second way to look at it is that we are once again sitting at the edge of a crisis, which might be just around the corner. At this stage, we have a falling five wave ratio line. This means that there is no fear in the market and hence this maybe not an opportune time to go long on the crisis commodity yet.

Our alternate count on Silver saw the metal moving up to fill the anticipate gap level at 12.6. Our back up count on Gold also saw it touching anticipated levels. However, we still believe that Metals overall continue to move against a price overhang. Above 640 many things change for our Gold count. At this stage we anticipate resistances ahead for Gold, Silver, MCX – Gold Near, HUI – Gold Bugs, NEM Newmont Mining Corp, GFI Gold Fields Limited and XAU – Gold and Silver Index, at 640, 13.2, 9300, 340, 47.4, 18 and 144 respectively.

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