Eighty

Eighty

May 7, 2018 Off By Chuck

Those that follow precious metals know that when the gold to silver ratio reaches 80 that it is a trigger to buy silver instead of gold.  Historically, the ratio rarely gets and stays above 80. When it happens, some sell all their gold and convert it to silver, wait for the ratio to crash, then flip their silver back to gold. There are others who make a pairs trade and go long silver and short gold. The point being that historically when the ratio tags that 80 level it sets up a high probability investment opportunity.

Below is a 15-year chart of the ratio of gold to silver (the blue line). What you can see is that if you had purchased silver (price in bottom pane) after the ratio crosses above 80 and then below the (red) 50 day moving average it would have been a very profitable investment. I have marked those cross-overs with a red vertical dashed line. The first instance of the cross-over occurred in 2003 and silver went on to rise more than 300%. The second occurrence in 2008 saw silver rose more than 360%. The third and most recent instance in 2016, silver went on to make a modest 30+% over a short 5 month period.

Fast forward to today and the ratio closed out the week still stuck at 80.  The longer the ratio stays above 80 the likely the bigger the reactionary move. The current chart of silver looks horrid as it has gone nowhere for more than a year and a half and can’t get out of its own way. I don’t know when it will happen (its definitely not right now) but it is my belief that when it does, the silver will present one of those rare triple digit profit opportunities that investors should not miss.