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In our eye's, when it comes to investing "Relative
Value" is 'everything'! Why? Because currencies are controlled
and manipulated by governments so "Price" (measuring an asset's
value with a currency) cannot be relied upon.
Where do we see some relative value these days? Let us
first clarify our point using a few historical examples and then we will
provide some insight into today's market.
In past articles we clearly illustrated the relative value
of the "Dow Jones to Silver" and the "Dow Jones to Gold".
 
In the above chart, when the Dow Jones increases in value
relative to gold the ratio (black line) heads up and when the metal
outperforms the Dow Jones, the black line heads down.
When we initially published the above charts back in 2007,
we were suggesting that we expected those ratios to break their 27 year
support line which would cause Silver and Gold to rise in value relative to
the Dow Jones (US stocks). Since this period of time the following took
place:
From the above we can clearly see that when the ratio's 27
year support lines were broken, the price performance of silver and gold
trended up and the Dow Jones trended down. The above insight was extremely
profitable.
Currently we see another relative value opportunity.
The above monthly chart suggests that relative to Gold,
Silver may be just about to break to the upside of a 30 year undervalued
resistance line. Similar to the Dow vs. Silver ratio examples above, this
could turn out to be quite bullish for silver. History would suggest that the
longer a support or resistance line has been in place, the greater the
significance it will hold once broken.
The above weekly chart provides a little bit more detail
in the short term which suggests that relative to Gold, Silver may have just
broken to the upside of this same 30 year undervalued resistance line. In
simple terms this means that Silver may greatly outperform Gold in the coming
months or years. Logically this makes sense as gold has been hitting new 'all
time' highs since early 2008 while silver is still well below it's all time
high set back in 1980.
This insight suggests that gold investors may want to
trade some of their holdings into Silver as this market may have some serious
potential for growth. Historically when silver has increased in value, it has
done so like a 'rocket'. This latest development could be big news for the
price of silver and silver investors.
At investmentscore.com we like to focus on the big picture
trends in the markets as we believe this is where the "big money"
is made. Obviously in the short term anything can happen but we find a little
more stability and predictable trends in the "big picture" and
using "relative value" analysis. Visit investmentscore.com to sign
up for our free newsletter, read more articles and learn more about our
unique and proprietary strategy.
Michael Kilbach
Editor
Investmentscore.com
Michel Kilbach is the
President and Editor or www.investmentscore.com,
an online publication designed to show investors how to make profitable entry
and exit trading decisions in high growth potential investments. Investmentscore
uses a unique scoring system as a visual guide to assist investors in making
lower risk / higher reward trades.
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