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.

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Gold Bottom Fast Approaching or Euro Going the Way of the Dodo?

The euro is getting absolutely massacred, driving the dollar up and gold down.  Badly.  Enough to completely wash out the weak hands, in fact.

Going out on a limb, we're going to attempt the most foolish thing one can attempt--calling the bottom of a massive sell-off.  Don't bet anything on this call.  Catching a falling knife is a fool's game.  Instead, look for a confirmation of a bottom by a turning dollar, a supported euro, and a little time with gold consolidating at a given level.  That's the only way to be sure.  But, in the spirit of holiday vigor, we're going to lay odds that today is the spike low bottom, occurring at or near the 1072 level.

We'll update the market situation more tonight.  Go study up on some mining companies...

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The Turn in Gold and Gold Stocks is Looming

Note how strong that most commodities have been acting even though the dollar has been on a strong, sharp rally.  That did NOT happen during the credit crisis.  This dollar rally has all of the earmarks of an intervention--it does not appear to be fundamentally driven.  In fact, today the US markets did quite well even though the dollar broke above 78.  Even the energy complex, notably oil, has generally been rising.  There are certainly no signs of a credit crisis or panic in the air.

Today, only one chart.  This one should say enough.

The HUI has basically been running within the channel it has set since the beginning of 2009, and we're quite near the bottom of the channel.  Gold is quite oversold now.  The dollar is quite overbought.  Look for a pullback to the trendline at the lower end of the channel near 400 and a turn up, even if gold is down for the day.  That should mark the turn for gold and gold stocks.  Be sure to review some of the relative performance charts we posted last week and do some homework over the holidays.  Gold investors may get the gift of heavily discounted gold before the end of the week!

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