*The fundamental factors surrounding silver appear to be more favourable
*than the price action suggests
The precious metals are totally off the radar by the majority of investors
The gold-to-silver ratio is a powerful trading signal that can help to identify buying or selling opportunities in the precious metals sector. The gold-to-silver ratio has moves above 85:1, which is the highest mark of this 18-year Bull market. We have to go back 27 years to year 1991 for the ratio to be higher than it is now. The ratio has averaged 55.5 ounces (each 31.1035 gram) of silver per 1 ounce of gold over the last half-century. So now question is, the current spike in the gold/silver ratio forecasting another stock market crash?
Sound it simple, yes? But this indicator is more powerful than it looks at 1st. The ratio of silver to gold in the earth’s surface top is 17.5:1. Notably, the ratio is currently higher than it was at the depths of the 2008-09 financial crises. In ancient times, the price ratio was set at 12:1. In 1792, the gold/silver ratio was fixed by law in the United States at 15:1, which meant that 1 ounces of gold was worth 15 ounces of silver; a ratio of 15.5:1 was enacted in France in 1803.
So, the current ratio of 85 is second highest historically and nearly 60% above the 20-year average. The all-time high for the gold-to-silver ratio occurred in February of 1991 at 100:1 in intra-day trading, at the height of an economic Recession. The latter drove up the world price of Crude Oil, decreased consumer confidence, and exacerbated the downturn that was already underway. The ratio typically spikes to extreme levels during the depths of an economic crisis or leading up to a significant correction in the US stock markets.
The US stock market is currently very robust and enjoying a 9-yr+ Bull market with gains in excess of 300% for the S&P 500 and 400% for the NAS (network-attached storage) computer index. Yet, the current gold-to-silver spike is happening absent a major crisis, as economic growth picks up and major stock indices hit new all-time highs. So the fundamental factors surrounding silver appear to be substantially more favourable than the price action suggests. Also, the gold to silver ratio is at an extreme level, witnessed only several times over the past 30 years.
While the precious metals are totally off the radar by the majority of investors, silver is setting up for one major bull market. Yes, it's hard to believe as the gold and silver prices have been trending lower while the broader markets grind up higher, but if we look at the fundamental and technical indicators, the stock market and precious metals are now at extreme opposites. The situation in the silver market is so much more favourable today than when it was trading at $20 at the peak in 2007. I will go one step further and say that the current silver indicators are even better than when the silver price fell to $9 towards the end of 2008. The ultimate bottom in silver may be near. Date: 19-9-2018