A Gold / Silver Ratio Signal

The price of silver is nearly double the value it was at the March low- that kind of price action gives Tesla a run for its money!

Rising US China tensions amid the closure of the China consulate in Houston may have been a trigger for the huge price gains in silver on Wednesday but the biggest factor is momentum. The rally will have fits and spurts but we think silver has further to go as CTAs and long term trend-followers jump onboard.

One metric we are watching to determine the outlook for silver is the gold/silver ratio. It shows how many ounces of silver you can exchange for an ounce of gold. The 80 level capped moves in the gold/silver ratio for 5 years, now after touching a record high over 120; the ratio is back to 80.

Chart: Gold / silver ratio (8-years)

Gold / Silver Ratio

The 80 price level could cap the rally in silver but a drop below 80 on prior occasions has ushered in big silver out-performance.

 

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