Gold:Silver Ratio Screams BUY SILVER (SLV, GLD, PSLV, AGQ, ZSL, SIL, SIVR)
Dominique de Kevelioc de Bailleul: If ever a chart signaled a time to buy, it’s the silver chart. Breakouts are everywhere, with the big one at $37 still ahead of us. Then there’s nothing between that price and $50.
But it may get much better, of course. Silver investors are already aware of the explosive moves in the metal. The chart (gold:silver ratio), below, serves as a visual reminder of how wild the runs can get when compared with the more tame precious metal cousin, gold. Get my next ALERT 100% FREE
Previous violent compressions of the gold:silver ratio manifested, starting on Oct. 3, 2003, when the ratio briefly touched 80 on a Friday (keep that in mind). Silver closed at $4.80 on the day. Six months later, on Apr. 6, 2004, the ratio bottomed at 51, for a drop of 36 percent in the ratio. The silver price closed at $7.21, a gain of 50.2 percent for that period.
The more recent and ever more dramatic decline in the gold:silver ratio began on Jun. 4, 2010, when the ratio briefly touched 70, on a Friday. The silver price closed at $17.41 per ounce. Nearly 11 month later, on Apr. 29, 2011, the ratio pierced 31, for a drop of 56 percent. Silver ended the day at $48.48, for a 178 percent gain for the 11-month hyperbolic move.
Then, of course, the raid on silver began within 30 minutes of the open of trading on Globex. The silver price plunged nearly $6 in literally minutes, according to Kitco’s database for May 1 (May Day).
It appears that another compression rally is underway. This time, on Dec. 30, the gold:silver ratio touched 57, again on a Friday. Since then, the silver price has soared, taking the ratio back down to 51. Silver closed at $27.86. A ratio of 50, if broken, could start the avalanche to a much tighter ratio. Everyone is watching closely.
So a compression in the gold:silver ratio to, say, the extent of the Oct. 3, 2003 – Apr. 6, 2004 rally of 36 percent, the new ratio calculates to 36.5 for this present move. If the compression reaches the Jun. 4, 2010 – Apr. 29, 2012, rally, the ratio calculates to 25.
During the Oct. 3, 2003 – Apr. 6, 2004, silver rally, gold closed at $372.50 on Oct. 3 and $418.50, respectively, for a gain of 12.3 percent for that time period. Silver rallied 50.2 percent during that period, or a 4.08 times more powerful move in favor of silver.
The monstrous rally in silver from Jun. 4, 2010 to Apr. 29, 2011, was a 178 percent move, against gold’s move of 28.3 percent—from $1,220 to $1565.70. Silver’s move again trounced gold’s to the tune of 6.3 times!
Assuming gold and silver are indeed in a power move up and that Jon Nadler and Nouriel Roubini are dead wrong, the combinations of potential gold prices and ratios are too numerous to present here.
But let’s assume the 2010-11 rally in the precious metals repeats. A 28.3 percent return on gold from the Dec. 29, 2011, close of $1,565.70 calculates to $2,009. Taking a gold:silver ratio of 25 and dividing that number into $2,009, that calculates to a silver price of $80.36.
If to match the duration of 11 months from the 2010-11 silver rally to the present one, by year end, silver would reach $80.
But of course, after silver passes the $50 threshold, $100 is assumed to be the next target. That’s the Stephen Leeb scenario, and it makes a lot of sense. Traders love round number targets. But then there’s the cartel who’s watching, too. $100 might be their target, as well.
Richard Russell once stated that as far as the price of gold is concerned, traders will look at $2,000, $2,500, then $5,000, and then $10,000. So, at $2,500 gold on this move and a ratio of 25 gives us that $100. Sure makes David Morgan’s target of $60 tame, but traders would still make out like bandits.
ETFDN Related Tickers: ProShares Ultra Silver (NYSEArca:AGQ), Sprott Physical Silver Trust ETF (NYSEArca:PSLV), SPDR Gold Trust (NYSEArca:GLD), ProShares UltraShort Silver (NYSEArca:ZSL), iShares Silver Trust (NYSEArca:SLV), Silver Miners ETF (NYSEArca:SIL), ETFS Physical Silver Shares Trust (NYSEArca:SIVR).
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