Why Use the Silver/Gold Ratio?

This post actually furthers a response to a colleague who wondered why I look at silver so closely instead of just industrial metals vs. gold.

The answer I’ll note here (a little more wise-assedly than in my emailed response to this well researched, hard working manager for whom I have much respect) is no reason really, unless you want to get a look into the future of the giant macro global trades. Now of course no indicator works all the time or the purveyors of such indicators would be rich beyond their wildest dreams and pursuing causes like world peace, eradication of famine and pestilence in our time or simply parking their asses on their solid gold toilets after an evening of fine dining.

But one thing I can tell you with 100% certainty is that the Silver/Gold ratio – which I use as a theoretically sensitive early indicator within the precious metals for readings on the macro inflation/deflation view – is that on this most recent bounce in the macro inflation trades (commodities, resources, global markets, reflation sensitive US sectors, etc.) the Silver/Gold ratio did make an accurate forecast.

Here, charts may be a lot of things when we men and women who stare at them read too much into them, but this one simply bottomed and turned up in July, well ahead of the IM/Gold ratio’s upturn in early September. Fact.

Thing 2 below is an indicator that officially promoted inflation policy has been gripping, but Thing 1 below could beg to differ out ahead if it turns down. Hence the big deal I’ve made about last week’s weakness in Silver/Gold. Without over-reacting, I plan to move forward in a sober fashion and let the markets and their indicators guide.

silver/gold ratio

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