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February
15
2018

Silver, Gold and the Dow
Gary Christianson

The gold to silver ratio hit 80 to 1 last week.  That is unusual – the 3rd highest in over 20 years.  It tells us:

• Silver prices are too low compared to gold. Silver falls harder than gold, and rises more rapidly in the late stages of a rally.
  
  
• Both gold and silver prices are too low. This is confirmed by the amount of global debt, the crazy heights of the stock market, low commodity prices, monetary nonsense, and political uncertainties.
  
  
• Both silver and gold bottomed in December 2015 and have risen modestly since then. Cryptocurrencies (such as Bitcoin) and the stock markets, DOW, NASDAQ and S&P 500, have zoomed higher. This will change. Bitcoin has already crashed.
  
  
• The next major move in silver and gold prices will be upward – probably for several years – unless you are convinced this time is different, the Federal Reserve and our Congress have created a permanently high plateau for stocks, and the Easter Bunny is bringing wonderful gifts to all Americans.

WHY?

The gold to silver ratio reached its peak of 102 in early 1991. At that time the U.S. government sold silver from its stockpile, central banks sold gold, and neither silver nor gold had recovered from their blow-off highs in 1980.

The ratio reached 84 in 2008 after the crash, 81 in 2016, and 80.0 last week. Examine this graph of the gold-to-silver ratio for the past 32 years.

The high gold to silver ratio peaks were buy points for both metals.

Another perspective is seen in the inverse of the ratio – the silver to gold ratio.

This graph shows that the silver-to-gold ratio has fallen to the long-term trend line near 1.25 (silver prices multiplied by 100).

CORRELATION OF THE SILVER TO GOLD RATIO AND SILVER PRICES:

Silver prices are volatile and unpredictable. They are “managed,” along with gold and most other markets, by High-Frequency-Traders and central banks. In the short term, the machines are in control.  In the longer term, cost of production, scarcity, ongoing currency devaluations, excessive debt, monetary nonsense, investor fears and other factors are more important.

Consider this graph of the (100 times) silver to gold ratio and weekly silver prices. Even on this “noisy” weekly graph the statistical correlation of the ratio and silver prices exceeds 0.50.  The ratio indicates bottoms and tops in silver prices. The high and low spikes in the ratio match price spikes.

WHAT ABOUT ALL COMMODITIES?

The commodity index (Thomas/Reuters Index) divided by the S&P 500 Index shows the relative strength between real commodities and paper stocks. Both stocks and commodities rise in price as the government and Federal Reserve devalue the dollar. But stocks have risen more rapidly for the past 15 years as newly created dollars surged into stocks and largely ignored commodities.

The ratio of commodity prices to the S&P is low – the lowest since the data began in 2001.

Another version using a different commodity index shows how low commodity prices are compared to the S&P since 1971.

WHAT ABOUT SILVER COMPARED TO THE DOW?

Silver prices hit a low in 2001 at $4.01.  The price of silver is about $17 in early 2018, but the ratio to the DOW is only slightly higher than in 2001.  Yes, silver prices are much too low compared to the DOW.

CONCLUSIONS:

• Silver prices are so low relative to gold that the gold to silver ratio reached a peak of 80 in early February 2018.
  
  
• Both gold and silver prices are too low given the quantity of global debt, the crazy heights of stock markets, low commodity prices, and political uncertainties.
  
  
• Both silver and gold bottomed in December 2015 and have risen modestly since then.
  
  
• The next major move in silver and gold prices will be upward – probably for several years.
  
  
• Assume the DOW drops to 20,000 (or lower) over the next year, and the silver to DOW ratio (currently 0.65) triples, a small move. That places silver prices near $40.
  
  
• Fifty dollar (and much higher) silver is likely given the explosive growth in debt and inevitable dollar devaluation on the horizon.

Plan accordingly and do your own due diligence, but think SILVER BULLION!

PROCRASTINATION:

Procrastination can be deadly. If you doubt this, ask a Bitcoin investor who wanted to sell, but did not, in mid-December 2017.

Call Miles Franklin at 1-800-822-8080 to convert digital and paper dollars into REAL SILVER!

Gary Christenson

Gary Christenson is the owner and writer for the popular and contrarian investment site Deviant Investor and the author of the book, “Gold Value and Gold Prices 1971 – 2021.” He is a retired accountant and business manager with 30 years of experience studying markets, investing, and trading. He writes about investing, gold, silver, the economy and central banking.