The gold/silver ratio, the measurement of how many ounces of the white metal needed to purchase one ounce of its yellow counterpart, can provide important clues regarding upcoming moves for both metals and the exchange traded funds that hold them.
It looks like it is time to once again heed the signals being shown by the gold/silver ratio.
“Strong rallies in both metals often take place when this ratio breaks above key falling resistance over the past 15-years,” according to Chris Kimble of Kimble Charting Solutions. “At this time the ratio remains inside of a three year falling channel. The ratio has had a nice rally since the first of June. What this ratio does upon hitting falling resistance line (2) becomes very important for the bullish case in the metals complex.”
There is something to be said for acknowledging the gold/silver ratio. Recent returns prove as much.
In late May, ETF Securites said the following in a research note: “For the few years prior the 2008 crisis, the gold/silver ratio hovered around 50. Since 2008, the ratio has reached a peak near85 and low near 32. With a median near 59, as the global economy continues to recover, the 50 area in the gold/silver is an area that is likely to be revisited in our view, with silver price upside the key driver.” [Silver ETFs Look to Regain Momentum]
Since May 29, the iShares Silver Trust (NYSEArca: SLV) and the ETFS Physical Silver Shares (NYSEArca: SIVR) are each up 9%, triple the returns offered by the SPDR Gold Shares (NYSEArca: GLD) over the same period.
The gold/silver ratio currently resides around 62.5. A break of resistance currently being tested by the ratio could be positive sign for both metals.
“Metals bulls want and need resistance line to be broken to the upside,” notes Kimble.
Chart Courtesy: Kimble Charting Solutions
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GLD and SLV.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.