Ratio of Gold to Silver

The first two charts below are our trading range charts for gold and silver.  The green shading represents two standard deviations above and below the commodity's 50-day moving average.  When the price moves to the top or above the trading range, the commodity is considered overbought (and oversold for moves below).  As shown, both gold and silver are currently trading right right at overbought territory based on their historical trading patterns. 

However, gold has been significantly outperforming silver since the middle of 2008.  In the third chart, we highlight the ratio of gold to silver (gold divided by silver).  A declining line means silver is outperforming gold, while a rising line means gold is outperforming.  Since June 2008, the line has pretty much gone straight up, as almost all commodities except for gold have seen big declines due to deleveraging, the bursting of the speculative commodity bubble, and the global economic downturn.  Based on the ratio of gold to silver over the last ten years, a reversion of the mean trade would be to go long silver and short gold.

 

 

Comments

[Hal]

Thanks for the graphs and analysis. It's definitely an interesting market right now.

[karen]

Back the gold/silver chart out another 10 years and you'll see a different picture...