Silver & Gold Predict the Fall of the S&P 500

• Posted by Greg Harmon
• on December 22nd, 2011

The ratio of Silver to Gold ($SI_F:$GC_F) can be a good predictor of the direction of the S&P 500 ($SPX). The chart below is a weekly depiction of this ratio, against a backdrop of the S&P 500. It is easy to see how the peaks and valleys line up and as the direction changes for the Silver:Gold

ratio the direction for the S&P changes as well. So now that the Silver:Gold has fallen from a peak and is in a bear flag, what does it tell us about the future of the S&P 500? The second chart takes the S&P 500 out of the picture but adds some indicators to help determine what is next. What it tells me is that the S&P 500 is heading lower.

The ratio is firmly bearish. The signs are numerous. First it is in a bear flag trending lower with the shorter Simple Moving Averages (SMA) sloping down and heading towards bearish crosses. The Bollinger bands are moving lower. The Relative Strength Index (RSI) is moving lower. The Moving Average Convergence Divergence (MACD) indicator has been improving towards a bullish cross but looks now to be ready to glance off the zero line and head lower. A break of this flag lower has a price target on the Measured Move to 0.012 near the 2008 lows. As an indicator of the future of the S&P 500, keep watching this as it is flashing danger.

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