Gold to Silver Ratio Analysis

According to the chart below, the decline in gold and silver prices has been the rising trend in the gold to silver ratio. Of course, this ratio measures the number of ounces of silver needed to purchase one ounce of gold.

Gold to Silver Ratio

The fall in the gold/silver ratio from above 80 (January) to 64 (early July) corresponds to the advances in both metals with outperformance by silver. The rise in the gold/silver ratio in July went from 64 to 68. However, both metals are declining and see only marginal outperformance by gold. Since the beginning of the year, silver has outperformed gold when viewing the entirety of the advance and subsequent retracement.     Gold to the Silver ratio: Silver's 2016 Outperformance in Perspective The major gold/silver ratio trend breakdown in April (first red highlight circle) was a defining change in the ongoing pattern. This was after nearly five years of rising in favor of gold. (large turquoise channel). The initial wave lower in the gold/silver ratio (corresponding with rising metals prices) lasted through September. This initial wave lower was halted at the end of September. We do not expect the former 2011 - 2016 rising channel to regain again. In other words: silver outperformance is likely over a multi-year period ahead. This is even though it will underperform gold sometimes during lengthy corrections. 

Different Strategies for Different Investors

Of course, each precious metals investor comes to the sector with a different set of goals. Maybe, a different time horizon. Or, different tolerance for risk. Long-term investors may find dollar-cost averaging into the lows to be a helpful strategy. Those with a shorter-term time horizon may want to focus on following some of these technical indicators along with us. Those wanting to hold gold as "wealth insurance" should know that the best time to buy an insurance policy is when it has come down. Wealth insurance provides security in case of political or economic turmoil  Those insurance policies are now some $200 cheaper per ounce than they were in mid-summer.

Other artciles: Goldman Sachs Predicts Gold Prices to Reach $1600, US Bonds On The Edge, Volatility as the Price of Gold Tests $1,200, Gold To Silver Ratio At It's Extreme.