What Is The Gold/Silver Ratio Really Telling Us?
Tommy Humphreys | Aug 26, 2014 02:34AM ET
Exactly 4 years ago today silver broke out from a multi-month consolidation:
Silver would go on to nearly triple in price before topping out at $49.82/oz on April 25th, 2011. Notice the thick volume-by-price bar that silver had formed near $18 back in 2010, a similar phenomenon is taking place in silver right now:
The key difference between now and summer 2010 is that silver is coming down to support instead of rallying up to resistance as it was back in August 2010:
It should be noted that the weekly silver chart shows a significant momentum divergence, however, the fact that price continues to test the $19 area offers reason for concern.
Meanwhile, the gold/silver ratio continues to form a bullish ascending triangle with potential for a significant upside breakout over the coming weeks:
The gold/silver ratio is bit of a curiosity among investors. It has tended to oscillate in a range around 50-60 for the past few decades, however, recently we have seen two huge outlier moves in the ratio which have highlighted extreme investor risk aversion (2008) and extreme investor risk acceptance (2011):
If the gold/silver ratio stages an upside breakout it could prove to be a meaningful indicator of a slowdown in the global economy and the failure of global central banks to create a self-sustaining global recovery OR it could be a sign that silver demand is in a secular decline. What is the gold/silver ratio really telling us?
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