Gold:Silver Ratio

Though we still need confirmation over the next few days, notably tomorrow, it appears that gold and silver have probably bottomed out.  If that's the case, then looking into the gold/silver ratio will point out which asset is likely to better perform over then next intermediate period.

This chart of the last 10 years of the gold/silver ratio is of particular interest at this point.  The chart is divided into roughly 4 sections: 2000 - 2003, 2003 - 2007, 2007 - 2009, 2009 - present.

The red line is the gold/silver ratio.  The gold line is the gold price, and the silver/gray line is the silver price.  

The long term trend is bullish for both gold and silver as can be seen by the general uptrend of both lines.  The gold/silver ratio, however, is characterized by longer term periods where either gold is rising faster than silver (when the longer term trend is moving up) or silver is outperforming gold (when the longer term trend is moving down).

The longer term trends are showing with the blue channel lines bordering the higher and lower ratio ranges.  The longer term trends are made up of intermediate term oscillations.  During a given longer term trend, gold outperforms, then silver follows.  If you'll take a look at the current longer term trend that started in 2009, you can see that silver has generally outperformed (the general trend is down for the ratio), and currently, we're near the top of the channel (meaning gold's outperformance in the intermediate term is likely at an end).  Assuming the longer term trend is intact, and we believe it is, then it is likely that silver will dramatically outperform gold for several months before gold takes over the leadership--likely next fall.  Longer term views of this chart show that the longer term trend remains intact, typically, for 2-3 years at a time.