Using the Silver/Gold Ratio as a Tell for the Broad Market
- Posted by Greg Harmon
- on June 16th, 2011
There has been a lot written about the ratio of Silver to Gold. Whether it is too high or too low. What each metal do to either mean revert or extend its advantage. How it has varied through history. But the ratio of Silver to Gold can also help predict the direction of the broad market. Take a look.
The 10 year weekly chart above has the Silver to Gold ratio in the black and red line and the S&P 500 Index as the gray line. Notice how well they track each other. They are not linked one for one, in fact the S&P 500 moves have been equal or larger relatively on this scale, but it is a very good fit. One of the most interesting things about this chart is that since 2006 it shows that the Silver to Gold ratio has anticipated moves lower in the S&P 500, preceding it lower in May 2006, August 2007, March 2008, September 2008, June 2009, January 2010 and May 2010. Recently it moved sharply lower again preceding this last move down in the market, but the S&P 500 move has not gone as far yet. Is there more downside to come? This chart does not guarantee that the S&P 500 has more downside, but it does help to keep you alert as you wait for the bottom to settle.
There are lots of different measures that traders use to try to get an edge and anticipate market turns. I have written about many of them: Copper, the Volatility Index, the Number of Stocks Above their 200 day Simple Moving Average to name a few. Add this one to the tool box.
If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.
The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.blog comments powered by Disqus
Gregory W. Harmon CMT, CFA, has traded in the Securities markets since 1986. He has held senior positions including Head of Global Trading, Head of Product Development, Head of Strategy and Director of Equity. (More)
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