Wednesday, May 14, 2014

Keep Alert For Precious Metals Turning Up - Silver/Gold Ratio

 Click on Chart to Enlarge

This chart shows the silver/gold ratio and shows that it has been hitting multi year lows and is near its half year bollinger band.  When bull markets take effect typically the silver outperforms and we would expect to see this ratio rise.  Also, just from a statistical standpoint, when these strongly correlated metals show a ratio far from the mean, it may be a time to consider a pairs trade - in this case long silver, short gold as a conservative speculation.

However, in context it appears that this is further confirming evidence that the precious metals as a whole may be forming a bottom and be ready to turn up very soon.  Historically June is the seasonal low time frame for gold, and with all factors taken into context, from my perspective, we could be seeing the seasonal low here now.
Click on Chart to Enlarge

This chart shows July silver futures and shows a move below the winter lows and now a reversal higher.  This type of stop running happens frequently before major advances.  Even going back a year, the July contract just slightly broke below the June 2013 low, but the cash silver and SLV etf have not.  These types of non-confirmation between futures and cash or near and distant futures contracts also can be flags that trends are about to shift.

Whatever, your trading methodology is, my suggestion is to keep GDX and SIL on your near term watchlist for longs and also look at other individual stocks in those sectors, or even just stick with GLD and SLV etf for speculative trades.

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