Silver/Gold Ratio and S&P500

Gold is making all-time nominal highs and Silver is very close. I say nominal because the inflation-adjusted numbers are much higher ($2,417 and $136 respectively). So now seems like as good a time as any to take a look at the Silver:Gold ratio and see how the stock market is feeling about it.

Below is a long-term chart showing that if Silver is outperforming Gold, stocks act well. The opposite is also true. The theory here is that Silver has more industrial usage than Gold and is also much more volatile. So if money is flowing into silver faster than gold, this is a sign of economic growth and therefore investors are willing to take on more risk. This is obviously a positive for stocks. If Gold is outpacing Silver, then money is theoretically trying to be safer and stocks don't act well in that type of environment.

[caption id="attachment_233" align="aligncenter" width="620" caption="Silver vs Gold ratio breaks out to multi-decade highs"][/caption]

The chart above shows Silver breaking out to multi-decade highs against Gold. This is a good sign for the stock market. Since we know how positive this correlation is, let's take a look at the short-term picture. Just yesterday, Silver closed at a new high vs Gold. As long as this trend continues, we see the S&P500 following the leader to new highs as well.

[caption id="attachment_235" align="aligncenter" width="620" caption="Silver vs Gold ratio closes at new highs"][/caption]