Why Gold And Silver Could Be Supported In 2017 And BeyondFirst of all, in a technical perspective we shouldn’t deny that Gold and Silver are in an intact long trend with higher highs and higher lows from the last significant low of 12/15/16, where the market bottomed at around 1123 US$/OZ in gold and 12/23/16 at around 15.64 US$/OZ in silver. From their gold rallied about 12.52% to 1263.14 and is now currently pulling back from recent levels.
Same with silver. Silver rally about 18.44% to 18.48. Which is +5.93% more than gold up move, which is quite impressive.
Both are in a long trend but the question is now how substantial these moves are. Well, this question is hard to answer.
Having a look on this chart above, which show’s us the gold to silver ratio, which is simply gold divided by silver. But what does this chart tells us, or even better what is the definition of this ratio firstly?
Well, the gold to silver ratio says how many silver ounces it takes to buy one ounce of gold. Which basically tells us how many ounces of silver we need to purchase one ounce of gold.
Before we get into details, here is first a short example. Currently, the Gold to Silver ratio is approx. at 69.34. Which tells us simply that we need 69.34 ounces of silver to purchase 1 ounce of gold. Not that hard right :-)?! But why do I need this information now, you might ask yourself? Well, the easiest answer for that is, it could signal us potential big moves in those particular precious metals.
The gold to silver ratio is negative correlated to gold and silver. For this general purpose, we will simply say that when the gold to silver ratio rally gold and silver will fall. Obviously, the gold to silver ratio is highly volatile and fluctuates widely, that you can’t just buy or sell accordingly to the ratio. But what you can do is you can potentially forecast big weekly moves.
The 18 years’ gold to silver average ratio is approx. 61.75 whereas the all-time average is currently around 56.19. Either way, which number you take, you see that the current ratio is way too overvalued. This is one of many fundamental perspectives on how to look at it.
But why do we think that Silver could be gaining on a percentage basis more than gold?
Well, have a look at the current correlation of gold and silver above. Silver has a constant negative correlation to the gold ro silver ratio whereas gold has a shallow negative correlation. This is also one of many indications, that why we think that silver will be more supported than gold throughout 2017 and way beyond 2017. Don’t get us wrong, gold will be also supported but the more interesting metal will be silver, due to the higher and constant correlation to the gold-silver ratio. --> See Comment section for continuation of the article.
Hope this helps.
Wish you a relaxed weekend.
