Gold May Outperform Silver

Excerpts from Bloomberg:

Gold may outperform silver, lifting the ratio between the two metals by as much as 20 percent, according to technical analysis by Societe Generale SA.

The attached chart shows the ratio of gold to silver steadied after dropping as low as 46.6 last week, near a two- year channel support line and the lows of 2008 and 1999. The second chart shows the ratio may climb to between about 56 and 58, which are retracement levels of the decline from June that are singled out in so-called Fibonacci analysis.

“The gold-silver ratio reached an important support at 47.5/46,” said Stephanie Aymes, a cross-commodity technical analyst with Societe Generale in London. “Gold will outperform silver to 56/58.”

An ounce of gold bought as little as 46.6 ounces of silver in London on Dec. 7, the least in almost four years. Precious metals gained this year on demand for a protection of wealth and an alternative to currencies. Some investors betting that silver may benefit from an economic recovery pushed the metal’s 2010 advance to 70 percent, outperforming gold’s 26 percent gain. Silver is used more in industry than gold.

The ratio’s 14-day relative strength index last month rebounded from a two-year falling trend support line and has been “posting bullish divergences,” Aymes said. The index fell to 14.7 on Nov. 8 and was at 36.66 on Dec. 10. Some analysts view a level of 30 as an indication of possible gains.


The gold to bond ratio is reaching extreme levels. It's current trajectory is heading for 12! As readers recall from previous posts, a level over 10 is dangerous as the gold to bond ratio measures stress in the monetary system as gold outperforms bonds.

Note the strength indicies:
RSI - over 70
MACD - bullish
Full STO - nearly 80

In my view gold is the monetary refuge of choice rather than silver, although silver looks more attractive than wobbly fiat dollars and euros.