Gold/Silver Ratio

Freemarket Gold and Money Report (03/23/2009)
"Long-time readers of these letters know that I put a lot of weight on the gold/silver ratio and follow it closely. The reason is that silver almost invariably leads the precious metals.

When prices fall, silver almost always falls first. Then the end of a price decline in the precious metals comes when silver turns higher. These twists and turns are captured by the gold/silver ratio, which shows how many ounces of silver it takes to purchase one ounce of gold. .

Right now, the ratio is at an important point. The ratio closed Friday at 69.1, which coincidentally is just above both its February 18th low of 68.5 and its 200-day moving average, currently at 68.3 and rising about one point every two weeks. So the question becomes, will the ratio break lower and fall beneath these two key technical points?

One can only conclude that it is bullish. The ratio is in a clear uptrend above its 200-day moving average. However, there is a potentially bearish aspect to this. There is a possible double-top forming in the low 80s.

In fact, as I have discussed in recent letters, the low 80s represents a major resistance zone going back to the mid-1990s. In other words, resistance at that level is formidable and won't give way easily.

If this bearish interpretation proves to be accurate, the ratio is poised to break to the downside, through support in the 68-69 area and head much lower. That breakdown would signal that silver is continuing to outperform gold, which of course is bullish for both precious metals.

Even more importantly, the next logical support area for the ratio is in the 55-58 area. That's a long way from the ratio's current level; it is some 16%-20% below 69.1. I am suggesting that if the ratio falls from here, it will do so in one big move, meaning that silver would probably soar from current levels back to at least $18, but possibly even $20 per ounce. If silver hits $20 and the ratio is at 55, then gold would be $1,100, which is consistent with my near-term view for gold."

 PRINT THIS PAGE   EMAIL THIS PAGE

Under SEC rules, analysts are required to disclose their interest in securities that they cover. We strongly encourage you to contact them to understand any potential conflicts of interest they may have.

Related Quotes: