Question for Double Eagle 59 - gold to silver ratio - GSR

jmski52

Double Eagle, you keep up with the gold/silver ratio quite religiously.

Richard Russell is saying that silver is undervalued relative to gold right now? What's your assessment of gold vs. silver at this time?

What direction has the ratio been leaning? Thanks for your commentary.

roadrunner

The GSR has been discussed routinely on the trading thread including Elliot Wave analysis. The ratio has been in a strong downtrend since October of last year. Currently in the final C (down) leg that began in July. And this C leg is now in the 5th and final leg down. A several day breather is currently in progress but then it should take another strong leg down. If it follows the pattern of the 2 previous down legs, we should see 5 waves as well.

The 2 previous down legs from July lasted 23 and 19 trading days each. We're only at the 5th day in the current sequence. RSI and Stoch still not entirely bearish. GSR seems to flat line on the stoch. for a while before turning back up. Notice the negative divergences (successively lower peaks) on the Rsi, Macd, and Slow Stoch over the last 3 peaks. Nothing yet I can see that indicates GSR is ready to turn back up for the longer term.

I'd like to hear DE59's views on this as well as this indicator is the heart of how gold and silver move.

Gold to silver ratio chart from July-October

roadrunner

gecko109

How do you determine if its silver that undervalued, or gold thats overvalued with respect to eachother and the ratio?

roadrunner

The ratio tells you how many ounces of silver it takes to buy an ounce of gold. Right now we're at 59. In March of last year it hit the upper 40's and then ballooned to around 90 in the October meltdown. The higher it goes, the more silver you need to buy gold hence silver appears to be more undervalued. The index has fluctuated from 17 to about 100 since 1980. A lowering GSR says that the price of silver is rising faster than the price of gold (or inversely falling slower than the price of gold is falling). And that's a sign of liquidity entering the markets buying more silver than gold. That usually happens when money is loose and available. When things tighten up, money prefers to stay with more stable gold which has a perceived monetary link.

Best way to look at GSR is sort of a market liquidity or volatility index. When money is free-flowing, it gravitates more to silver and lowers the index. There are correlations as well between GSR, bond yields and the US dollar price. The index may not tell you if silver is actually underpriced or overpriced. It tells you which way the liquidity is flowing. Since 50-55 was the general range of the index before 2008, I can see why Richard Russell feels that silver is undervalued to gold with the index currently at 59. Considering that it peaked out at 17 in 1980 it may have much more potential.

roadrunner

Justacommeman

I just recently added to my short gold/long silver pairs trade. Trying to take advantage of the historical ratio. I currently own 65/35 gold to silver in bullion................MJ

gecko109

<< <i>I just recently added to my short gold/long silver pairs trade. Trying to take advantage of the historical ratio. I currently own 65/35 gold to silver in bullion................MJ >>






That 65/35 is value I assume, and not physical weight, correct?

Justacommeman

value

roadrunner

QuadG on the gold:silver ratio - long term and short term chart analysis

Sorry, but the link doesn't work to the kitco forums. They must not allow it. You can find the charts on page 220 on QuadG's "Major Market Movements" thread.

QuadG over at Kitco Forums offered his analysis on the GSR charts. His analysis offers up two alternatives to the short term correction coming at us this month. But his view on the bigger picture to come was not something I had yet considered. That is that the current intermediate term wave running since July is probably just the tail end of the initial A (of an ABC). Currently we're still in the A leg of a 3 leg correction that could run months. The corrective B leg coming this month or next could spook some people into thinking the gold breakout was false. Then the C leg will pounce. This is a worthwhile chart to keep an eye on.

The charts are in the center of the page linked above. The estimate for the current leg's ending point is a GSR of around 56.5-57.0. One possible data point might be gold $1080/silver $19.

roadrunner

DoubleEagle59

sorry for the delay guys....

Presently, I still think silver is such a better buy than gold. Based solely on the ratio, which right now, I feel silver is quite undervalued compared to gold.

I don't see it going to 10:1 or 15:1, but even a ratio of 45:1 presents great gains for silver over gold.

At today's gold value, if the ratio was 45:1, silver would be at $23.65 an ounce.

jmski52

Thanks Double Eagle. With all of the expertise on this forum, I can solicit very solid justifications for both silver and gold - indeed I can provide several compelling reasons for either one on any given day.

With gold strong and silver somewhat tepid today, I was sorely tempted to pull the trigger on some silver. I still might.

the current intermediate term wave running since July is probably just the tail end of the initial A (of an ABC). Currently we're still in the A leg of a 3 leg correction that could run months. The corrective B leg coming this month or next could spook some people into thinking the gold breakout was false. Then the C leg will pounce. This is a worthwhile chart to keep an eye on.

roadrunner, does all of this have time to happen within the 30 days that Sinclair is focused on? What you are suggesting is that my timing would be less than perfect if I bought this week.

So, what else is new?

roadrunner

The GSR so far is suggesting another 2 weeks or so before it bottoms in the 55-57 range. Silver could hit the $18-$19 point in that time. If you bought in now you could decide to bail out. The pull back leg won't be more than several weeks. That would place us into November or December. Maybe silver corrects back to the $16 range again but it shouldn't last too long. No easy answers.

The GSR looks like it's about done correcting back on this leg. And best of all it is doing it horizontally so far with little damage. That would mean gold and silver primed to take out $1070/$18.

roadrunner

jmski52

If you bought in now you could decide to bail out.

If I buy in now, it makes my $21.00 Silver Eagles from last year look pretty good! Bailing out is not in my vocabulary as it concerns silver.

Jim Rogers likes silver over gold right now as well.

On the other hand - in the interest of due caution, I might just decide to cool my jets for a couple weeks and see what does happen. A green monster box can wait - perfect timing is not hypercritical as far as I'm concerned.

Zubie

This was a pretty good GSR thread and was wondering what you guys see for Dec and into 2010? You guys were right on the money!!! T

DoubleEagle59

<< <i>This was a pretty good GSR thread and was wondering what you guys see for Dec and into 2010? You guys were right on the money!!! T >>



I don't know of any way to 'predict' the future of the GSR.

I just plan my PM investing according to the highs and lows of the GSR.

roadrunner

I just checked the technicals on the GSR and it is giving the look that it may have begin a new intermediate up trend. That's not good news for silver and possibly gold as well. Wm%R has turned decisively upwards and that usually means a move to the upper end of its range before turning back. GSR bounced off the lower 20 day Boll. Band and should seek the upper band. Note also that Aroon (8 day) is nearly peaked out in the down direction and in the same position as it was around Oct. 12th when it last began an upward move as gold peak (Wm%R and Slow Stoch show same thing).

Also note the relatively even upward channel GSR has formed since around mid-September. None of this is immediately bullish for PM's. But the weekly GSR chart seems to show the current uptrend since early October to be near the end of its move. This still appears to be a B wave in an ABC series but it has certainly lasted a long time. Once this supposed B wave ends silver will let loose with a veangence. The YuYangers have 11/23 (today) as the peak for the current intermediate gold cycle. GSR has been running in multi-week cycles. Even the Aden Sisters chimed in today with their bullish gold predictions......uhh oh!

GSR daily chart - stockcharts

Weekly GSR chart

roadrunner

jdimmick

I dont know didly squat about ratio's , charts , etc

But I can tell you from real world sales data in my shop and the local area , that there is resistance to buy silver at current levels, gold not, gold fly's out the door at currentl levels as fast as ever before, but not silver.

jim

DoubleEagle59

<< <i>I dont know didly squat about ratio's , charts , etc

But I can tell you from real world sales data in my shop and the local area , that there is resistance to buy silver at current levels, gold not, gold fly's out the door at currentl levels as fast as ever before, but not silver.

jim >>



that's very interesting.

I would have thought the opposite.

jmski52

<< I dont know didly squat about ratio's , charts , etc

But I can tell you from real world sales data in my shop and the local area , that there is resistance to buy silver at current levels, gold not, gold fly's out the door at currentl levels as fast as ever before, but not silver.

jim >>


that's very interesting.

I would have thought the opposite.

When I posed the question in the OP, I was trying to decide between silver vs. gold for my next purchase because I knew that I had some inbound income.

Despite my thoughts that silver has a better potential percentage-wise and in spite of my personal affinity for silver, I went ahead and bought gold. Then I bought some more gold. Go figure, eh?

I think that my rationale for gold was that gold is still more a monetary metal and is a bit easier to store. That was my rationale this last time around. The next purchase will have a different thought process, I'm sure.

roadrunner

Jim, those GSR charts are basically mirroring what you're seeing in the real world. So that's a confirmation in one sense.

Silver has been fighting against the GSR trend for a couple of months now. It's surprising that it has actually found a way to go up to nearly $19 in the interim. A contrarian might take the recent resistance in silver to indicate that a strong move is just waiting at the gate.

roadrunner