Top Callers Must Be Looking at the Silver to Gold Ratio

• Posted by Greg Harmon
• on May 9th, 2013

One indicator of the future of the equity market, used by many, is the ratio of Silver to Gold. Over the last 15 years, maybe more, that ratio has been highly correlated to the S&P 500. Take a look at the chart below of the weekly measure of the Silver ($SI_F, $SLV) to Gold ($GC_F, $GLD) ratio plotted against the S&P 500 ($SPX, $SPY). It is easy to see the correlation, until about November 2012, noted by the blue line. But something seems to have changed then. This divergence could definitely lead to many calling for a reversal in the S&P 500 lower to join the Silver to Gold ratio lower. But it could just as easily raise calls for the Silver to Gold ratio to rise. Interestingly there have been many top calls for Equities but not really

any calls for Silver to outperform Gold. The increase in calls for an equity top can be understood, if not accepted, by the proximity to a triple top. And the Silver to Gold ratio itself certainly does not look like it is ready to reverse with the Relative Strength Index (RSI) and Moving Average Convergence Divergence indicator (MACD) supporting more downside. Perhaps this divergence though is caused by a secular change in Gold breaking the previous correlation. We will know with greater certainty with a longer lens to view, but in the meantime, just follow the price action. For now the new normal appears to be that the S&P 500 has a negative correlation to the Silver to Gold ratio.

Want to learn more about Dragonfly Capital Views?

Dragonfly Capital Views Performance Through April 2013 Expiry and sign up here.

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