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Silver Analyst
Posted Oct 19, 2015
I posted an article on the gold silver ratio (GSR) back in February 2009
which you can find here.
My closing words were that “it looks like a top was set back in late
January”. By that I meant a top in the GSR, not the price of silver which
clearly had suffered a large drop during the mass sell-offs of the Credit
Crunch. When the GSR peaks, the price of silver tends to bottom and that
clearly came to pass as silver began a run up to $50 two years later.
How has the Gold Silver Ratio (GSR) been doing recently and how does this
stand up against the price action of silver over the past years? Some will
use this ratio to rebalance their gold and silver holdings. A high GSR means
switch from gold to silver and vice versa. I did not pay much attention to
any such signal back in 2009, but it was on my mind this week as I increased
the holdings in my favoured silver ETF.
Where I did find it useful back in 2009 was as a trend changeover signal
and as I show you the monthly GSR chart for the last twenty years, it is
evident that the GSR has been on an upward trend since April 2001. The weekly
GSR with the silver price superimposed in green is shown for comparison below
it.
Since I am always on the lookout for indicators which are globally or
locally useful to the price of silver or gold, one leapt out at me this week
past and that was the 20-month moving average of the GSR, which is the red
line on the first chart.
In this case, I noted something as the last three major uptrends of the
GSR peaked in November 1996, June 2003 and November 2008. When the GSR then
dropped below its 20-month moving average, it confirmed the start of a major
move in silver. Using the guidance of a full month’s trading range below the
moving average; the new upward silver trends were subsequently confirmed in
February 1997, January 2004 and September 2009.
Now as we await a new silver bull trend to commence, again we see the GSR
nicely moving just above the 20-month moving average but still giving no
indication that it is about to breach below the moving average. Though the
required full trading range below the average will happen some months after
the chronological start of the bull, its arrival will give increased
confidence to everyone who is poised or already committed to the next great
move in the rollercoaster story of silver.
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