[Article] If Gold Has Turned Bullish, Can Silver Be Far Behind? (+GSR)

[SpacePete]

Some interesting comments on the GSR below.

"On March 1, 2016, the ratio was at 83.52 or at the peak level during the 2008 crash, when the price of silver was around its low. This indicates silver is due for a long and substantial rally. There may not be enough impetus for this just quite yet though."

If Gold Has Turned Bullish, Can Silver Be Far Behind?

Summary

* The price of gold and silver tend to move together, but they can peak and bottom at different times.

* According to the charts, gold has entered a bull market, but silver hasn't.

* The gold/silver ratio indicates silver is at a long-term inflection point indicating a bottom.

* As long as gold remains bullish, silver will follow although it may take a while longer.

Gold and silver tend to trade together over time, although one can lag the other by some months. Coming off a bottom, it makes sense that gold would rally first since it is primarily an investment vehicle with most of its usage going to bullion bars, coins, and jewelry (in most countries, jewelry is the preferred method for owning gold). Only about 13% of gold is used for industrial purposes, while it's around a 50/50 split for silver. This investment percentage for silver rises as the metal rallies, since silver is much cheaper than gold and more people can afford it. While silver may rally later than gold, it can also peak earlier.

As can be seen from the 10-year chart below, gold and silver do move together (silver is the yellow line and gold price is represented by the black bars). Although gold and silver both peaked in January 1980 at the end of the 1970s bull market, silver peaked earlier than gold in 2011. The top in silver was in late April, while gold hit its high in early September - a four-month lag. So, one of these precious metals can be used to predict the behavior of the other, but the relationship is not always the same. In general, however, gold leads the sector, which also includes platinum and palladium.

The chart also shows quite clearly, that silver is much more volatile than gold, and investors can both lose more money and make more money by investing in silver.

Whether or not silver is under-priced compared to gold can be measured by the gold/silver ratio. In theory, the relative price of gold to silver should be 16:1 because there are 16 ounces of silver for every ounce of gold in the earth's crust. Therefore, gold should be 16 times more expensive. This price ratio of 16:1 rarely occurs, though, and is only reached when silver is likely at a long-term peak.

The only times in the last 100 years when the ratio has been around this level is May 1968 (the price of gold was fixed at the time, but not silver, which is what made this possible) when it was 16.25 and December 1979 when it was 14.16. At the silver high during 2011, the ratio was 31.53, indicating this was not a multi-decade high for the precious metals and the subsequent bear market was cyclical (a few years) instead of secular (two decades or more).

On the opposite end of the spectrum, when precious metals bottom, the gold silver ratio is very high. The peak level within the previous century was 100.82 in January 1991. Before that, it was in the high 90s in 1940 and 1941. At the Credit Crisis low in December 2008, it was at 83.86. Silver rallied from just below $9 an ounce to almost $49 an ounce after that. On March 1, 2016, the ratio was at 83.52 or at the peak level during the 2008 crash, when the price of silver was around its low. This indicates silver is due for a long and substantial rally. There may not be enough impetus for this just quite yet though.

More: http://seekingalpha.com/article/3956899-gold-turned-bullish-can-silver-far-behind

 

[SpacePete]

Haven't heard of "the 3 sisters" before, but I like it

Silver: The New Hot Commodity

The 3 Sisters

You may think of Gold and Silver as the same market. But the metals have distinct properties and do not always move in lock step with each other. In fact, you might think of Gold, Silver and Copper as 3 sisters, all from the same family, but each with her own personality.

Gold is the glamour queen. Everyone's favorite. Flashy. And temperamental. In the modern age, gold almost totally disregards core supply demand fundamentals and behaves like a currency market. This, interest rates, stocks, economic factors can all impact her price (although not really correlate it to anything).

Copper is the Worker bee. Copper is the poster child for industrial commodities and its price is even used as a thumbnail gauge for overall economic health. Copper is all about supply demand fundamentals and tends to do well in times of economic growth and less so in times of economic slowing.

Silver is the middle sister. It shares properties of both its glamorous golden sibling and it's 9 to 5 lunchbox industrial one. A big move in gold can pull silver with it. But Copper can pull back, saying "no you don't, she's staying with me!" Thus, a factor that can fuel an outsized move in gold or copper will often get a more temperate response in the Silver market. At the same time, Silver can also choose to break from either copper or gold and follow the dominant sister wholeheartedly.

For instance, in the most recent surge of investor related buying, silver broke entirely from copper and traded a very similar pattern to gold. This despite the fact that silver and copper demand are affected by many of the same factors at the industrial level. She can dress up and go to the red carpet event, or she can put on her overalls and go to work - it all depends on the occasion with silver.

http://seekingalpha.com/article/3956898-silver-new-hot-commodity

 

[scrooged]

Pete, when waiting to cross at an intersection, hitting the button 50,000 times won't make the little green man appear any quicker.

 

[sammysilver]

Pete, when waiting to cross at an intersection, hitting the button 50,000 times won't make the little green man appear any quicker.

Bullshit!! The more times you hit the button, the better you feel. A pleasant diversion, makes the time pass quicker and thus the sooner the green man appears!

 

[scrooged]

Pete, when waiting to cross at an intersection, hitting the button 50,000 times won't make the little green man appear any quicker.

Bullshit!! The more times you hit the button, the better you feel. A pleasant diversion, makes the time pass quicker and thus the sooner the green man appears!

Think I'd rather J-walk and be mowed down by a cyclist than pleasant diversions.

 

[fishtaco]

Some interesting comments on the GSR below.

"On March 1, 2016, the ratio was at 83.52 or at the peak level during the 2008 crash, when the price of silver was around its low. This indicates silver is due for a long and substantial rally. There may not be enough impetus for this just quite yet though."

If Gold Has Turned Bullish, Can Silver Be Far Behind?

Summary

* The price of gold and silver tend to move together, but they can peak and bottom at different times.

* According to the charts, gold has entered a bull market, but silver hasn't.

* The gold/silver ratio indicates silver is at a long-term inflection point indicating a bottom.

* As long as gold remains bullish, silver will follow although it may take a while longer.

Gold and silver tend to trade together over time, although one can lag the other by some months. Coming off a bottom, it makes sense that gold would rally first since it is primarily an investment vehicle with most of its usage going to bullion bars, coins, and jewelry (in most countries, jewelry is the preferred method for owning gold). Only about 13% of gold is used for industrial purposes, while it's around a 50/50 split for silver. This investment percentage for silver rises as the metal rallies, since silver is much cheaper than gold and more people can afford it. While silver may rally later than gold, it can also peak earlier.

As can be seen from the 10-year chart below, gold and silver do move together (silver is the yellow line and gold price is represented by the black bars). Although gold and silver both peaked in January 1980 at the end of the 1970s bull market, silver peaked earlier than gold in 2011. The top in silver was in late April, while gold hit its high in early September - a four-month lag. So, one of these precious metals can be used to predict the behavior of the other, but the relationship is not always the same. In general, however, gold leads the sector, which also includes platinum and palladium.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2016/3/8/169827-14574659048818104.png

The chart also shows quite clearly, that silver is much more volatile than gold, and investors can both lose more money and make more money by investing in silver.

Whether or not silver is under-priced compared to gold can be measured by the gold/silver ratio. In theory, the relative price of gold to silver should be 16:1 because there are 16 ounces of silver for every ounce of gold in the earth's crust. Therefore, gold should be 16 times more expensive. This price ratio of 16:1 rarely occurs, though, and is only reached when silver is likely at a long-term peak.

The only times in the last 100 years when the ratio has been around this level is May 1968 (the price of gold was fixed at the time, but not silver, which is what made this possible) when it was 16.25 and December 1979 when it was 14.16. At the silver high during 2011, the ratio was 31.53, indicating this was not a multi-decade high for the precious metals and the subsequent bear market was cyclical (a few years) instead of secular (two decades or more).

On the opposite end of the spectrum, when precious metals bottom, the gold silver ratio is very high. The peak level within the previous century was 100.82 in January 1991. Before that, it was in the high 90s in 1940 and 1941. At the Credit Crisis low in December 2008, it was at 83.86. Silver rallied from just below $9 an ounce to almost $49 an ounce after that. On March 1, 2016, the ratio was at 83.52 or at the peak level during the 2008 crash, when the price of silver was around its low. This indicates silver is due for a long and substantial rally. There may not be enough impetus for this just quite yet though.

https://staticseekingalpha.a.ssl.fastly.net/uploads/2016/3/8/169827-1457466020047053.png

More: http://seekingalpha.com/article/3956899-gold-turned-bullish-can-silver-far-behind

Whats to stop the gold to silver ratio just getting further and further apart? If only 13% of gold is used in industry compared to 50% of silver then silver is more an industrial metal compared to gold. If the % of silver usage in industry increases over gold % of today then the ratio of metal to metal in oz,s will not mean what it may have done in the past.

If the price of silver goes up too much it will be non viable for the 50% used today to continue increased use. If there is no cheaper alternative to silvers industrial use then it must remain at affordable cost. It would be much easier to find an alternative to golds
13% use with rising prices than silvers 50% with rising prices causing an even greater ratio gap.

 

[Gatito Bandito]

Whenever I see these arguments that the GSR is too high & must come down, all they ever do is reference the past.

Guess what? The past has passed.

And the GSR doesn't "have" to do anything.


I'm more interested in the future.



For once, I'd like to hear why Ag (or Au) is the better bet for the next 20 years -- *without* mentioning the past charts..

 

[SpacePete]

Whenever I see these arguments that the GSR is too high & must come down, all they ever do is reference the past.

Guess what? The past has passed.

And the GSR doesn't "have" to do anything.

I'm more interested in the future.

For once, I'd like to hear why Ag (or Au) is the better bet for the next 20 years -- *without* mentioning the past charts..

You don't use the GSR to decide whether gold or silver is better to hold for the next 20 years. That is a fundamental misunderstanding of the utility of the GSR. The GSR is simply an indicator that can be used regularly to decide when to flip between the two metals for profit, it is about the distance between prices rather than specific prices themselves, and it can be used as a signal on the price direction of one metal or the other. There are of course many factors that should be taken into account when attempting to project future prices.

People shouldn't look at the current GSR and state "what it has to do" but should instead ask "what is it telling us?" They may say it is increasingly likely to go in one direction or the other and whether one metal will rise or fall relative to the other, but it is not some fundamental law.

Since we don't get information from the future, the past is all we have to go on, and analysis has shown that utilization of the GSR as an investment strategy outperforms a buy and hold strategy over the long term.

See: http://www.mcser.org/journal/index.php/mjss/article/viewFile/8673/8331

Results


As Figure 2 shows, the longer the time period, the more superior is the GSR strategy. The buy & hold strategy is better only for 10-year time periods. 36 10-year time periods were analysed and the average return of the buy & hold strategy was 186,41%. However, the GSR strategy lagged only slightly, as it was able to generate average return of 173,25%. A huge advantage of the buy & hold strategy is that it is able to capture the whole extent of major bull runs, while the GSR strategy is able to capture only the middle part of the bull runs. On the other hand the buy & hold strategy also captures the whole extent of bear runs, while the GSR strategy is able to avoid a meaningful part of them. The positive aspects of the GSR strategy need more time to accumulate and show the positive effects.

The analysis shows that the GSR strategy is far superior to the buy & hold strategy during the 20-year time periods. There were 26 20-year periods analysed and the GSR strategy was able to generate returns of 258,69% on average, while the buy & hold strategy reached an average return of only 138,39%. The difference was even bigger when taking into account the 30-year time period, where the score was 522,84% : 139,07% in favour of the GSR strategy.

Conclusion

The gold-silver ratio is an important indicator that can provide useful information about the current state of the precious metals markets. The empirical analysis shows that major increases of the gold-silver ratio are mostly related to growing gold prices and declining silver prices. The major declines of the gold-silver ratio are always related to growing silver prices. This is why this article focused on silver investing strategies, as the gold-silver ratio seems to be more reliable in predicting silver price movements than in predicting gold price movements.

The gold-silver ratio proved to be a highly reliable indicator of future silver price development. It is able to create investment strategies that use the gold-silver ratio as a generator of buy and sell signals. One simple silver investing strategy that uses the gold-silver ratio to generate buy and sell signals was presented in this paper. The results show that it is clearly superior to simple buy & hold strategy in the long term. The differences between the average results of the two strategies are statistically significant regarding the long term (30-year) time intervals. Moreover there is a lot of room for optimisation of the strategy in order to achieve even better results.

 

[mmissinglink]

As some have pointed out in other threads, keeping a close eye on the GSR isn't very beneficial to most physical PM stackers but rather only to holders of paper claims to PM's who are interested in swapping the claims of one metal for another.

I am purely a physical stacker and so the GSR really isn't vital to me at all even though it is an interesting comparative tool if for no other reason than to get a glimpse of what the general direction of the comparative sentiment toward each metal is.



.

 

[SpacePete]

As some have pointed out in other threads, keeping a close eye on the GSR isn't very beneficial to most physical PM stackers but rather only to holders of paper claims to PM's who are interested in swapping the claims of one metal for another.

I am purely a physical stacker and so the GSR really isn't vital to me at all even though it is an interesting comparative tool if for no other reason than to get a glimpse of what the general direction of the comparative sentiment toward each metal is.

Does the GSR drive sentiment more so than being a measure of it?

 

[Alfie]

Whenever I see these arguments that the GSR is too high & must come down, all they ever do is reference the past.

Guess what? The past has passed.

And the GSR doesn't "have" to do anything.


I'm more interested in the future.



For once, I'd like to hear why Ag (or Au) is the better bet for the next 20 years -- *without* mentioning the past charts..

I'm no technical analysist by a long shot..... but isn't data accumulated from the PAST used to calculate the FUTURE direction of a share/commodity?

 

[fishtaco]

Whenever I see these arguments that the GSR is too high & must come down, all they ever do is reference the past.

Guess what? The past has passed.

And the GSR doesn't "have" to do anything.


I'm more interested in the future.



For once, I'd like to hear why Ag (or Au) is the better bet for the next 20 years -- *without* mentioning the past charts..

Well gold has to be the best "long term" metal investment if investing in metal because gold will always be regarded as the "precious metal" with silver the much poorer cousin.

This is taught from childhood almost all over the world! Gold means wealth Silver does not unless its being used for cutlery and the like where this just shows the less wealthy the wealthy can even eat and drink from what they could barely afford to invest in.

With jewellery people will always class silver as cheap so they prefer gold jewellery as to not feel cheap, some even buy rolled gold hollow gold and gold plate rather than silver! It cant be changed its in people minds it will be this way forever not just the next 20 years.

This doesnt mean you cant make money and preserve some wealth with silver but if you have enough wealth already to invest in gold it shows you already have enough wealth not to worry about that gold making you more its just a preservation of that "abundance of wealth".

What do silver stackers really think when they see fellow stackers trading in oz,s of gold? I know what I think, how the fcuk did they get that much wealth to be buying and selling oz,s of gold on an internet forum!

 

[Holdfast]

If the USD tumbles...we who hold Ag and Au are screwed, if the AUD gains we can buy more.

 

[BuggedOut]

I like the 3 sister analogy. Should we also be looking at the silver to copper ratio?

The SCR if you will?

 

[mmissinglink]

As some have pointed out in other threads, keeping a close eye on the GSR isn't very beneficial to most physical PM stackers but rather only to holders of paper claims to PM's who are interested in swapping the claims of one metal for another.

I am purely a physical stacker and so the GSR really isn't vital to me at all even though it is an interesting comparative tool if for no other reason than to get a glimpse of what the general direction of the comparative sentiment toward each metal is.

Does the GSR drive sentiment more so than being a measure of it?

No, definitely the cart can't come before the horse (figuratively speaking). If it seems as if that's what I was implying before, then I just wasn't being clear in my communication.



.

 

[mmissinglink]

If the USD tumbles...we who hold Ag and Au are screwed, if the AUD gains we can buy more.

Really? Screwed in what way? PM's dropping in USD denominated value? That could happen but my understanding was that if the USD tumbles, many investors would flock to safety which would be precious metals for some or many investors. Then supply and demand would drive the value of PM's up, up, up.



.

 

[Stack'n Oz's]

As some have pointed out in other threads, keeping a close eye on the GSR isn't very beneficial to most physical PM stackers but rather only to holders of paper claims to PM's who are interested in swapping the claims of one metal for another.

I am purely a physical stacker and so the GSR really isn't vital to me at all even though it is an interesting comparative tool if for no other reason than to get a glimpse of what the general direction of the comparative sentiment toward each metal is.

Does the GSR drive sentiment more so than being a measure of it?

Wait! What? What are you implying? That emotion can drive a market?! That some fictional standard can drive huge corporations that employ thousands of analysts, hundreds of actuaries and a few statisticians even could be moved by something as "inconsequential" as the GSR?

To quote you: https://www.youtube.com/watch?v=fnyMUpPdVqw


LOLz.


EDIT: By the way - thanks for the reading and quoting your sources. For real.