Gold/ Silver ratio – not a red flag for stock markets, yet …

When stock markets are at record highs it can be a stressful time as history tells us that bull runs always come to an end. In the past, a lead indicator of market sentiment has been the gold/ silver ratio. This is the gold price divided by the price of silver, when it is moving higher the gold price is outpacing gains in silver, and vice versa.

Since gold is considered a safe haven and silver is an industrial metal, a surge in the gold price relative to the silver price can be interpreted as a sign that market sentiment is turning and investors are getting nervous. Thus, when the gold/ silver ratio is elevated it has historically coincided with declining stock markets, and vice versa

Today the gold/ silver ratio is at its highest level since 2010. So should stock traders be concerned?

• The range for this ratio has been 50-60 for most of the last two years.

• The increase in the ratio suggests that the silver price is under pressure, which may be due to concerns about the fragile global growth outlook.

• Weak global growth is usually negative for the stock price, however QE from the Federal Reserve is one of the factors boosting stocks, it may also be one of the reasons why the gold price is outperforming silver, as gold is considered a hedge against the negative effects of QE (inflation, debasement of fiat currencies etc).

• The gold/ silver ratio is currently just below 61. It was significantly higher at the peak of the financial crisis at the end of 2008 when it surged to 80.00.

Takeaway: Looking at this ratio on a long-term basis, it does not appear to be over-stretched. It was significantly higher in 2008, 2002 and in the early 90’s, which all coincided with stock market sell offs. So, while it’s worth keeping an eye on this ratio to see if it creeps hgiher, at its current level it does not suggest that a selloff is imminent for US stock markets.

Источник: Forex.com

22.05.2013