Statistically, gold and silver prices closely follow each other.
But what is more important is the ratio between silver and gold and the trend of that ratio.

The 30 year gold/silver ratio chart reveals that the silver-to-gold ratio is currently priced at the low end of the range, long-term silver prices are gradually increasing relative to gold, and a price explosion could occur at any time!


 

Submitted by Deviant Investor:

Examine the following chart.

Click on image to enlarge.

 

We can see that:

    1. For the past 27 years (after the 1980 bubble and subsequent correction) the ratio has been in a slow up-trend.

 

    1. The silver peak near $50 in April 2011 clearly stands out as an anomaly.

 

    1. The silver lows in 2008 and 2013 were at or below the trend lines, as I have drawn them. Silver rallied considerably after the 2003 and 2008 ratio lows. I expect the same will occur after the recent lows in the ratio.

 

  1. The ratio can explode higher in a few months or languish for years.

My conclusions from this graph are that the silver-to-gold ratio is currently priced at the low end of the range, long-term silver prices are gradually increasing relative to gold, and a price explosion could occur at any time, or perhaps not for several years.

 

Is there more we can learn from the ratio?

Take the weekly prices for silver and the weekly silver-to-gold ratio and smooth them with a 7 week centered simple moving average. This merely removes some of the “noise” in the graphs. Plot that weekly data since 2002, roughly the beginning of the silver and gold bull markets. Examine that graph.

 

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Click on image to enlarge.

 

    1. You can see that silver prices generally follow the ratio. This merely tells us that silver prices move both up and down more rapidly than gold prices but that they generally move together.

 

    1. The ratio has fallen hard in the past 3 years – back to levels seen in 2009 and 2003, before large rallies in the price of silver.

 

  1. The silver-to-gold ratio is currently low – about 0.015, the inverse of gold-to-silver ratio of about 66, which is quite high.

Statistics

    • From January 2002 to May 2014 (12+ years) the statistical correlation between the weekly smoothed silver price and the weekly smoothed ratio was 0.67.

 

    • From May 2008 to May 2014 (6 years since the start of the crash) the statistical correlation between the weekly smoothed silver price and the weekly smoothed ratio was 0.87 – quite high.

 

    • The mean of the weekly data on the smoothed 100 x silver-to-gold ratio for the past 12 years is 1.71 with a standard deviation of 0.28.

 

    • The mean of the weekly data on the smoothed 100 x silver-to-gold ratio since the 2008 start of the crash is 1.75 with a standard deviation of 0.31.

 

  • Based on the past 12 years, the ratio is currently 0.78 standard deviations below the mean. Similarly, based on the nearly 6 years since the crash, the ratio is 0.84 standard deviations below the mean.

Based on the ratio data and the statistics, we can conclude that:

    1. The ratio is low and in the zone of the 27 year trend-line where we can reasonably expect the ratio to turn up.

 

    1. Silver prices increase and decrease with both the silver-to-gold ratio and gold prices, only more rapidly than gold.

 

  1. The ratio is well below (about 0.8 std. dev.) the last 6 and 12 year means and is likely to turn up. Hence the price of silver is very likely to rally in the next few months or so.

Fundamentals

Gold demand is strong – ask China, Russia and India. Western central banks have “leased” some, or perhaps most, of their gold. The German gold stored at the NY Fed was not returned – possibly because it is no longer in the vaults. See Julian Phillips’ analysis on that topic. If most of the central banks’ gold is gone (“leased” into the market), demand will soon overwhelm the supply of real, physical gold. The High-Frequency Traders can suppress the paper market, but not forever.

It is a reasonable bet that gold, about 40% below its 2011 high and facing large demand and dwindling supply, will rally in price over the next few years. Silver prices will follow gold prices but rally farther and faster from their currently low and oversold condition.

Was the above analysis a conclusive proof that gold and silver prices must rally? Obviously not!

But it strongly suggests:

    • Silver has been correcting for over three years. It could rally at any time.

 

    • Silver prices are currently LOW compared to gold prices – the ratio is at the low end of its 27 year trend channel and likely to rise.

 

    • Silver prices fall faster and rally more rapidly than gold prices. When the price of silver finally takes off it will push the ratio much higher – perhaps to 0.03 or 0.04 – the equivalent of a gold-to-silver ratio of 33 to 25.

 

  • Many other indications (not shown here) also suggest silver is too low, over-sold, and ready to rally. The same is true for gold.

Investor demand for silver and gold bars and coins is strong and increasing. I think silver and gold prices will be higher by the end of 2014 and much higher by the next US presidential election.

The pieces of paper we mistakenly call money will become less valuable in the years ahead. Take this opportunity to convert some paper currency to physical silver while the High Frequency Traders and central bankers are gifting us with artificially low silver and gold prices.

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  1. Personally, I’ve lately found far greater fascination in examining the silver-to-banknote purchase power ratio (SBPPR).

    The banknote purchase power has decayed 98% since 1913. That ought to be the central factor for comparison to silver … NOT … the other way around. From that perspective, the realistic TRUTH is that every 100 banknotes is properly exchangeable with two silver dollars of 371.25 grains fine.

    Viewing silver through this kaleidoscope of the banknote lens needs to stop. Banknotes are factually worthless stamps with purely imaginary ‘worth’ assigned them by number symbols. Symbols are, themselves, nothing more than mental tools for arranging order to things. REAL things.

    Money Is Weighed, Fictions Are Counted.

    • And yet… EVERY seller of gold and silver out there will HAPPILY accept banknotes in payment for any silver or gold that any of us cares to buy and can afford.  The same goes for food, fuel, meds, and any other goodies that we want.  Yes, banknotes are intrinsically worthless but they are not actually worthless because we can still exchange them for many things that we value.  I believe that a time will come when the perceived value and the intrinsic value of banknotes will coincide… at zero… but that day has yet to come.  Until it does, banknotes still have value, even if it is only a perceived and not an actual value.  If anyone reading this has a wad of “worthless” banknotes that they no longer want, I will be happy to pay the cost of shipping them to my door.  In fiat, of course.  :-)

  2. Yawn. Same crap for 3 years and will be another 3 years. Then society will collapse and the price will not matter. That is why I totally look past these hype pieces which by the way have been 100 percent wrong over the last 3 years.

  3. “Any minute now!”
     
    I am not sure you can chart-technically compare 2 vastly differently mined metals over such a long period of time.
    Silves might take more advantage of being mined as a by-product than gold does? Gold migh be suffering greater cost in creases?
    It’s gold (and platinum) mines where employees are being machine gunned down, because that’s cheater than a raise.
    At any rate, are primary gold miners lining their pockets while silver miners are dying for a break? I get the impression they are hurting equally bad. That might make the ratio economically in the “fair range” at the moment.
    The metals being so different geologically, I don’t think it’s strange for the cost (real) ratio to slide by a factor of 3-4. Should we nog also look at gold-platinum ratios, over a really long time?
    Silver and gold are monetarily coupled to a degree, which makes it tempting to try and analyse them in tandem. But the reality of the intrinsic value (energy stored) is all too easily forgotten.
    All my fundamental scepticism aside, I do still have good HOPE that in the next bull run, it will be for both metals and that silver will move quicker. After years of reading, I have not found a clear reason WHY silver would act as a leveraged gold price. This seems to be a persistent tradition more than anything.
    Once the ratios with palladium and gold have improved vastly, I may have to take some “profits” there. See how Palladium has faired lately. Why weren’t we all in on this? I didn’t buy because of higher VAT on it, but look, I would have done better than with plain silver.

    • Yeah, if I get my way with it, we help tradition a bit and deplete the physical market to a degree that the ratio overshoots and hits 7 or lower. Then we get to swap to gold or real estate, perhaps both is wisest, depending on inflation scares by that time.
      I would love to see silver so scarse and wanted that we hit gold parity, if only for a few days (I’ll be happily swapping), but to expect even a dip to 15 is a bit unfounded by now. 
      I don’t see any justification for a ratio below 60 other than volatility and charting tradition. If miners were like the grocery store, what prices and ratios would they be charging? Well silver is actually NEEDED so they may price that relatively high.

    • Good Evening, Old Friend! 
       
      Too Much MOPE for me to really make a guess where we “should be” but your EROEI theory does actually hold some water. 
       
      Call this latest bottom for me, I have some “dry powder” and would like to maximize the buying power 
      I’m thinking this weekend? 

  4. How can anything exploded up when the paper shorts keep crushing the price.  15.00 is look good to buy more silver now. The miner can fix all this by shutting down the mines let them have zero physical silver then what are they going to do then  ??? 

    • The primary silver miners could do that. And the by-product (base metal) miners could keep the market going (even lower than now) for quite a while. There is little supply coming from primary silver miners, and the by-product miner could care less. Silver is a nuisance more than anything to them. If there were no silver in their ore bodies it woould be one thing less to pay attention to.
      You’ll need to come up with a heck load of money (in stacker terms, not in QE terms) to buy off the global silver demand. 
      Say you open your own exchange for silver, with a consistent 10% premium over COMEX. Like fairtrade coffee in a sense. You offer mines 10% more than others do. Surely (unless under cartel “protection) they’ll sell to you. You then get to have NO physical customers for quite a while, as stockpiles priced to COMEX are being drained first, as far as TPTB are prepared to have them drained. Then, or a fateful day, everyone is happily paying COMEX +10% and COMEX is delivering a fraction of today. And you +10% facility is now also being used for to take delivery. Perhaps you don’t feel liek selling yet, and go to COMEX +20%, 30%, etc. And remain sitting on all the silver you’re buying.
      This would cost dozens of billions to play out over the course of a few years. And it will only work if you don’t do any funny stuff with margin gambling, but actually have all the cash ready up front, from day 1.
      The primary mines need to LIVE. They need to get capital, or sell ounces. Currently, they need both, and only a low stock price can appeal investors. But how can they offer enough new shares if there is not enough value behind it?

      We need to extract as much from the market at these price levels as possible. But it’s really not much. Stackers are slackers. Poor sods. We try, we fail. Investor demand a magnitude of power higher is needed to get this market to really go into deficit panic I am afraid. If only the silver message were strong enough for a pyramid scheme, it had already happened. All of use have laid out the silver story to on average a dozen other, who may even be more cash-rich than us. Who even got 1 person to stack to your level? I got one, to maybe 20%. Ain’t good enough. We need to 10-fold our retail demand, and be sure most of our collective stack is not remelted back at the back door for near-term fiat gains.
      I do wonder though. Are all the (say) 2008 Eagles still in existance? Or have some been remelted already? Why hold them, and are they stacking even harder now, or have they given up?

  5. First, let me say, I appreciate the information I get here at no cost, and I believe in the big picture as described, overall.  I also know after all the talk recently, this crash wasn’t supposed to happen to this extent, and now, the only thing left to do is close the failed positions, or hope that something propels the market up.  However, unlike the optimistic enthusiast that drew the lines on the chart, in my opinion this chart was grossly misinterpreted. 
     
    First, the only reason you see the obvious high, was because the run up to it was cut radically short by HFT, which crashed it, which made the extreme low. It then continued on it’s way, making up what was lost, which resulted in a higher high. There is no voodoo in that move.  If you crash something that hard when it’s on a move up, it will always make a lower low than the others, and it will always resume it’s trend with increased vigor.
     
    In addition, this low is no lower than the other ones on the page, so it’s not like we are even seeing the same ‘trigger event’. In fact, this whole comparison really lacks any substance despite the technical sounding nature, and really does a discredit to your site.  Even if it spiked right now, it would have almost nothing to do with this chart, and more what’s at play right now. 
     
    I think it’s time everyone calms down with these headlines and we go back to watching and waiting.  A crash is coming, I agree.  But if you could see it coming, it wouldn’t be a crash, so it’s silly to say today is the day it goes up – especially based on this chart which has almost nothing similar to today’s circumstances. 

  6. On a more serious note. Just because you say something is about to happen, from experience, it does not.
     
    The Silver Gold ratio has been a contentious issue for many many many years. There is the argument of natural ratio, then there is the argument of usage etc
     
    At the end of the day, it is what it is. Silver will not double its value compared to gold over night. It is range bound, and has been for some time, ever since you can speculate on the Gold/Silver ratio, effectively betting on the ratio as you would on an FX trade between two currencies.
     
    Fundamentals as we all know, mean nothing these days, the only upside to gold and silver, is when the crash WILL happen, again, hopefully the last crash, getting bored of this escalation, lets do the big one already, and build a better society from the ashes.
     
     

  7. And todays Gold price is – $15,000 and todays Silver price is – $1500,there is no physical metal for sale so we can price it at what we want and if you are stupid enough to sell at our prices a central bank will buy it straight away just before the great reset ………………….. and then the price of true physical metal went dark because there is none for sale.I hope the bankers are ready for the punishments when the true story of what is on going is truthfully told.

  8. I see silver as being indispensable. We are all aware of the many ways we use silver today. But gold doesn’t do much. Maybe it’s price prohibits many of it’s other uses. Some say gold is the purest form of money and that that is it’s intrinsic value. I question that. An intrinsic value would be the other uses it has which are few at present. Gold doesn’t shine in a dark vault. If the masters of the universe are ever brought down and a free market allowed, then silver will at least be on par with gold in value if not surpass it (if only for awhile, because if that happened the industrial use of silver would suffer as the cost of using it goes up and new supply/demand forces determine it’s value). The global in-ground reserves of silver seem to be a state secret so who can say what the future holds for the shiniest metal. For now let them suppress it. It’s to our benefit they continue.

    • RocketsRedGlare … “An intrinsic value would be the other uses it has which are few at present.”
       
      It’s exceedingly dismaying to see intelligent, sincere, passionate and well oriented folks, such as yourself, become distracted into minor, tentative aspects of monetary comprehension.

      Whatever subsidiary uses the money metals might be put to, alternate utility dimly pales against their principal benefit, touching our lives almost every moment of every day … which is to derive a thoroughly objective means of pricing … ironically … both the metals and the things traded through them, simultaneously.

      The sum total of (proper, undebauched) money metals in circulation, because of their combined, enmeshed supply-demand characteristics, drives optimal pricing throughout the whole economic matrix … again, intimately touching living man and woman’s life .

      This factor alone is entirely sufficient to illustrate how dismally undervalued all the money metals (traditional and adaptable) are in their own right. Diversions into pondering their other uses has some valid merit, but only in after-thought.

    • Pat, to derive a thoroughly objective means of pricing one needs an honest and free market. Supply vs demand is not a minor consideration. Gold is a no substitute for silver. Silver is indispensable, gold isn’t. That’s why silver is so good as a tool of exchange. It does have real everyday use and value That I personally don’t think gold has. Those are my thoughts on the G/S ratio and this article and I don’t feel distracted by sharing them with the forum.

    • RocketsRedGlare … “to derive a thoroughly objective means of pricing one needs a free market.”
       
      That’s the beauty of chiefly comparing silver and banknotes from the purchase power facet of view. In 1913, the relationship of silver to all other prices had free-market evolved from 1789 to that juncture. Many prices of goods were unchanged throughout the entire time, except where technological improvements had a profound effect … leveraging those prices down, due to productivity increases per labor input and sales-volume metrics.

      By rather pricing the banknotes in silver from the benchmark of 1913 parity, we arrive at the closest proximity to ‘free market’ silver valuation on them, as can be had. With that parameter, we then have a far more logical factor to further bear on all the other ‘uses’ for silver. Approaching the problem from the opposite direction is rife with twists and turns causing inaccuracies at best, or misleading confusion at worst.

    • lynnybee … “as i watch it going lower & lower”
       
      See, there. You’re falling for the mirrored illusion making you convincingly take a reverse view of truth. It’s really banknotes that are being pushed up.

      So, Lynny, in contemplation of all the crappy economic evidence we’re receiving about rapidly declining prospects worldwide, will you allow yourself to … believe … that image? Do you … believe … that banknotes ought to be rising in value?

      There’s only one reason logic compels us to accept this temporary ‘strength’ in banknote stamps … it’s in preparation to use them as bribes to tempt the ‘banknote believers’ from their silver and gold before the banknotes go bust!

      Money Is Weighed, Fictions Are Counted.

  9. I invested quite a bit in gold and silver and start feeling that I made a terrible choice. I do not blame anyone for this as it was my pwn decision. What really makes me angry are these completely stupid artcicles, obviously conceived by some brain dead writers. Both gold and silver prices are plummeting, but this idiot refers to the high gold/silver ratio and infers that the silver price has to rise. Yesterday we read another bullshit article, that the future use of silver in Chinese solar panöes will save the day. Bottom line is that all these smart asses like Sinclair, Turd, Embry, Schiff and morgan know absolutely nothing. Their comments remind me of the propaganda talks of the Nazi leaders about the final victory in April 1945.

  10. graphs graphs and more graphs and none are ever right .. how come ?? because precious metals are manipulated! it’s NOT going to explode until the manipulation end or the usd reserve currency crashes. people keep acting like this is some sort of investment. it’s not because the central banks say its not. we are stacking because we know the usd reserve currency game is up and we are preparing for SHTF and the zombie Apocalypse or revolution or both. keep posting ur graphs and telling us your BS and wonder why ur losing credibility and we are all laughing and making fun of your graphs..

  11. i made a buy …… i know the score & the score is that i got more for less today.   thanks, everyone.   p.s. my family thinks i’m nuts.  they don’t see what i see, they don’t understand it either.   all i know is that when i was a kid i had silver coins in my pockets with dates from the 1800′s on them.   i remember.   my dad saved his silver coins in a coffee can & always said to “pay yourself first.”    I’m happy today !  in fact, i’m psyched…… i got metal. & my dad (rest his soul) would be proud of me for “saving”.

  12. It is not if, but when the manipulation ends and the metals are money again, silver will revert to it’s stoichiometric ratio. I hear told it is coming out of the ground at 9:1 versus gold. Some say it is more precious than gold for it’s physical properties. My granny used to place a silver coin in the milk to make it last longer- antimicrobial properties. I personally think it won’t matter because Russia will fulfill prophesy and invade Israel ushering in Armageddon.

    • @Andymal
      The mined ratio is correct. But much gold is manually picked from a kilometer deep in the earth’s crust in cramped tunnels.
      Silver is for the largest part scooped up by mega machines that were just looking for copper, zinc, etc.
      If the day comes that base metal mining goes out of style (fast economic contraction, better construction and recycling?), silver production drop hard. Silver’s price would explode soon enough, but never enought to persuade the base miners to get back to work.

  13. My conclusions from this graph are that the silver-to-gold ratio is currently priced at the low end of the range, long-term silver prices are gradually increasing relative to gold, and a price explosion could occur at any time, or perhaps not for several years.
     
    BAA hahahahahahahahahahahaha
    This just in
    it may rain tomorrow or it may be sunny
    check back tomorrow to find out LMAO
    as soon as I saw the word chart ya lost me
    none of these articles addresses the MANIPULATION going on.

    • That reminds me of the sign sometimes seen in small taverns and restaurants… “FREE BEER TOMORROW!”.  But, tomorrow never quite comes because when it does, it becomes today!  ;-)
       

  14. Only thing exploding are the gurus shitting their pants as one prediction after another fails. Time to change your drawers again boys-you’re all  filled up. BTW-Kmart has Hanes on sale, buy 2 packs,get 1 free. Maybe you all can pitch in together and buy a case. You guys have to be starting to stink up your surroundings pretty bad. Dudes might give you all a pass but the gals are starting to whisper. Cheers.

  15. Once again, we have an article that tells us why we can absolutely expect fantastic price appreciation at any moment. Bull! We will have what ever price TPTB want us to have, and not a cent more. Everyone who owns PM’s KNOW the market is rigged, and yet the regulators, who also KNOW the market is rigged do NOTHING!  All of the fundamental analysis, all of the charts, all of the anecdotal evidence mean zip, zero, nada! Therefore, the price will go up when TPTB say so, and not a minute before.

  16. I will say it again when there is no more real silver to be bought the price will move up. As long as the Comex bull shit paper is in play they will put the silver price where they want it they play it like a stock. Once it breaks away from paper physical silver will skyrocket until then this is what we get and for now I love this dirt cheap silver I am buying. But I am ready to have it go north. .

  17. While some folks here have a problem with charts in general, I only have a problem with the ones in which the author does not provide proper definition.
    On that first chart, “100 * Silver to Gold Ratio since 1986″ what are the units on the vertical axis?

  18. I look at buying silver as a way to trap my purchasing power in something that can transfer to a new paradigm. Worrying about the dollar value of your stack is silly to me. I like to think in terms of redemption value on the the silver compared to goods, like the ounce of gold and a fine suit and shoes/toga belt and sandals example. My normal monthly savings is converted to silver as a matter of course and i don’t worry about the market price too much. When it drops I like it though. :)
    On another note, I’ve been to a few pawn shops in my area and they’re not selling gold or silver–only buying.

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