Here’s a ratio we haven’t brought up in some time. I’ve been more focused on showing you guys the key support and resistance levels in Gold and Silver because that was the easier trade. It was inevitable that these metals broke down. Metals are in a terrible bear market, and regardless of what all your favorite gold bugs have to say, price pays and the trend is down. This increased the likelihood of the break of support we saw recently in Silver and, in my opinion, the upcoming break in Gold.
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Today we’re looking at the Gold vs Silver ratio breaking out to new multi-year highs over the last couple of weeks. This was a big breakout since we had key resistance from the highs in July last year and May of this year. These two particular tops were actually temporary pivot lows for both Gold and Silver:
When this ratio is declining, we are seeing real risk-appetite in the precious metals space. The August decline last year in this ratio led to a 30% rally in Silver and 12% rally in Gold in in less than a month. The sell-off in June in the ratio led to a 15.5% rally in Silver and an 8.5% rally in Gold over the next month. But now we’ve officially broken out above these highs as Silver broke support and Gold to me looks just as vulnerable.
This outperformance in Gold over Silver signals to me that there is a lack of risk-appetite out there in precious metals. This is a similar situation to the underperformance in the small-cap US stocks since March warning us of a lack or risk-appetite in US Stocks. We are beginning to see this now bleed into the larger-cap names. We want to see the smaller, more speculative, more volatile assets (small-caps and silver for example) outperforming the larger, less speculative, less volatile assets (large-caps and Gold) to signal real risk-appetite.
Make sure to join the rest of our Eagle Bay Solutions Members and receive weekly updates on Gold and Silver charts along with the rest of the metals. There is a lot going on here, so I think it’s worth paying attention to.
Tags: $GLD $SLV $SI_F $GC_F