Silver Buy Signal – 2016

The gold to silver ratio has been used for years to indicate buy and sell zones in both gold and silver. Why?

At BOTTOMS in both gold and silver, based on 40 years of history, silver prices have fallen farther and faster than gold. Hence the gold/silver ratio reaches a relative high.

At tops in both gold and silver the ratio is often low since silver rises more rapidly than gold. As Jim Sinclair says, “silver is gold on steroids.”

Examine the following graph of the gold to silver ratio (monthly data) for the past 40 years. I have circled the six most extreme highs in the ratio with green ovals.

At 5 of 6 extremes in the ratio silver was at or near a long term bottom. The one minor exception was when silver bottomed in November of 2001 at $4.01 and the ratio peaked later in May 2003. Otherwise the ratio was quite accurate at indicating major silver lows.

For more confirmation, assume a silver buy signal occurs when an extreme in the gold to silver ratio has been reached, and the weekly silver price closes above its 5 week moving average.

Monthly Ratio Extremes Silver (weekly) closes above

(green ovals above) 5 week MA

June 1982 July 2, 1982

August 1986 September 5, 1986

February 1991 March 8, 1991

May 2003 April 11, 2003