After a lengthy uptrend stretching across the past 15 months, the gold/ silver ratio appears to have broken out of it’s uptrend channel, implying a new trend of silver out-performing gold, and one more indication that silver’s next major bull run has begun.
Silver typically out-performs gold during major bull runs as the market is so much smaller and more volatile.
After the ratio had stretched to over 70-1 in 2010, it narrowed nearly to 30-1 in April of 2011.
Over the past 15 months while silver has correctedthe ratio has been in a steady uptrend, reaching as high as 59-1.
That up-trend has been topping/consolidating (appears to be completing a rounding top, coinciding with silver’s rounding bottom) between 57 and 59-1 since late June, and appears to have decisively broken it’s 15 month up-trend over the past week.
The break of the gold/silver uptrend is a strong signal to swap physical gold for physical silver. If the last rally in the gold and silver bull markets is any indication, the ratio should narrow sharply during the next bull run, likely to 15 or 20-1.
A look at the 2 year chart of the gold/ silver ratio:
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_silv.gif)
![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/live/s_gold.gif)
Adding on to Doc’s on-target analysis, it should also be noted that when we see a switch, with silver outperforming gold, that signals a sentiment shift in the overall financial markets towards the view that accelerating inflation is more likely than a deflationary debt implosion (or, partial implosion). In turn, that just so happens to fit nicely with the recent back-up in long-term US bonds; when people are fearful the entire system crash will escape the abilities of policy makers to paper-over the implosion, they run to bonds in an poorly conceived view of safe haven, the result of a distorted understanding of monetary history along with the popular perception that the gold and silver markets are too small to provide effective safe harbor in a uber-leveraged, multi-trillion dollar global economy.
Take-home points:
1) When silver outperforms gold, it’s an indication that both metals will perform strongly because the “inflation trade” has returned and given “modern” perceptions of the global monetary system, “professional” traders and investors have an easier time understanding and believing in the notion that the PM sector performs well during periods of inflation, and less so during periods of deflation, regardless of the historical record;
2) Keep an eye on the long end of the US bond yield curve as we may have very well seen the ultimate top of the 30+ year old bond market bull run;
3) Notice the confirmation to the return of the inflation trade we’re getting from from food and energy, and soon, prices in pretty much everything else should begin a new move higher;
4) Mining equities also tend to see stronger runs during periods of active inflation trade perceptions, as compared to periods where everyone is freaking out about the entire financial system falling apart (e.g., 2H-2008, when mining shares were beaten down to a pulp)
The VIX index is also at all time lowsbemoaning there is a lot to fear in the equities markets.
That’s right. It’s made all the worse given monetary inflation. It’s one thing to have complacency, which we see in abundance. But it’s even more twisted to see financial liquidity being forced into the stock market because liquidity has limited options for other places to go, further goosing the VIX lower. There will come a time when “professional” investors go through a religious experience and re-learn the true nature of PMs as the ultimate safe haven. That’ll come in the middle to latter part of “Stage 2″ of the PM sector’s bull market. Generally speaking, there are three stages in bull markets: 1) smart money entry; 2) acceptance by institutional money; 3) entry by the masses. We’re only in the early part of stage 2, as amazing as that sounds given our 11+ year bull run to-date.
The 24 hour spot chart hasn’t been so smooth in months…has someone turned the computers off (algorithms not spiking the chart)?
Yeah, you’re seeing a greater degree of smoothness. By my eye, I think we’re seeing a small amount of algo-trading from the momentum buy-side hedge funds, which helped to kick off this week’s bull run. But it’s modest and therefore not too jagged with upside spikes in today’s trading. Meanwhile, it’s usually the case that the cartel steps aside during the early and middle stages of a bull move, conducting only modest downside management actions. In my opinion, historical trading patterns suggest that the cartel prefers to bomb the heck out of the PMs once 80% or more of the overall thrust of buying interest has run its course. What that suggests is that if we see a leveling off in Asian trading over the next 8 hours or so, don’t be surprised to see the cartel attack with force Wednesday. But it will not likely break the uptrend when viewed from a weekly trading picture and going into next week.
@Flying Wombat It’ll be a beautiful world when you can invest with a sound currency.
Or is this a setup to smash the price back by the end of the week and take profits?
I think the smarter move is to make your next phyzz purchase silver as the upside is more favorable than gold. I don’t think swapping your gold phyzz for silver phyzz is wise because the IRS does not treat it as a like for like tax free exchange. If you want to play those trading games sitick with paper.