Tuesday, June 5, 2012

Gold Silver Ratio at upper end of range

The Gold Silver Ratio is currently around the 56-57 area which many would consider high based on the coinage act of 1792. (The Act defined the proportional value of gold and silver as 15 units of pure silver to 1 unit of pure gold.)  The ratio of Gold to Silver in the earths crust is somewhere between 15 and 20 to one, I've read that it was 18-1.
So, if one believes that the Gold Silver Ratio will eventually go down possibly under 20-1, this may be a good opportunity to accumulate or add to your position. That is if you are going to hold long term. (Which IMO is over a year and may be another 5 years for this commodity bull market).

Can the ratio go higher?  Sure, possibly 60+ depending upon how speculators see the economy as Silver is tied to an industrial metal.  Economy is bad, less demand for the metal...  at least that is how the street sees it.

Gold rallied huge last Friday and was up quite a bit more than Silver. Speculators will flock into Gold in uncertain times and will generally stay away from it's volatile brother, Silver. Gold is currently leading with Silver following.

The 56 ratio is trading near the recent top produced in late Dec, 2011.  Will a double top be produced? Both RSI and Stochastics are overbought and suggest a possible reversal to the downside. There should be major resistance to the upside just under the 60 level as noted by the low point in Sept 2009.

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