Which rally has more legs? Silver might have edge over Gold

It could be Silver’s turn to shine based on gold to silver ratio. This is a new trend that is likely anticipating another major round of central bank easing/stimulus.

 

Gold to Silver ratio XAUXAG offers clues

This chart of XAUXAG gold to silver ratio could help investors who are bullish on precious metals decide which one to buy. Before we look at the chart, first a primer on this ratio by Provident Metals

First, a simple definition: Basically, the gold-to-silver ratio is the amount of silver it takes to purchase one ounce of gold.

At the time this was written, the gold-to-silver ratio stood at approximately 50 to 1.

That means, at the current price, it would take 50 ounces of silver to buy 1 ounce of gold.

While there are countless websites providing the current ratio, it’s relatively painless to calculate on your own.

Simply take the price of gold, divide it by the price of silver and Voilà! You have the gold-to-silver ratio.

 

Trend of XAUXAG in favour of Silver

Between April 2011 to February 2016, gold to silver ratio favoured gold in a slow and steady gain against silver from a value of 31  to 83. Based on trend line study, this trend appears to be over. XAUXAG is now moving in favour of XAG i.e. silver price to strengthen more. Ratio is already back at 2013 – 2014 level.

XAUXAG Gold to Silver ratio monthly chart from April 2006 - 11 July 2016

XAUXAG Gold to Silver ratio monthly chart from April 2006 – 11 July 2016

 

Financial easing/stimulus drives silver demand – fact or fiction?

It is interesting to note that the last silver strengthened between end 2008 to mid-2011 coincided with the start of QE 1 and end of QE 2. This suggests that precious metals investors bought into silver in a period of stimulus/easing which backs up another chart I brought up previously. That if you believe that MAS is more informed than the rest of us, market conditions could be very similar to 2008 just before QE 1. (April 2016 MAS announced policy shift to SingDollar-neutral. Last time it happened was October 2008, one month before QE1.)

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April 2016 MAS goes SingDollar-neutral, last time it happened was October 2008 (published 14 Apr)

 

Coincidence or something else…

Timing could not be better.

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Yen Rally Halts Near 100 as Abe Ponders Adding Fiscal Stimulus | Source: Bloomberg

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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