As any avid precious metals investor would know, the Gold/ Silver Ratio is currently flashing a strong "Buy Silver" signal, with a ratio at press time of over 87:1, this is telling savvy investors that silver is undervalued relative to gold, or that gold is overvalued relative to silver.
I believe that we could quite easily resolve the rising wedge pattern and have a period of mean reversion in the ratio, closer to the 60:1 mark, however at press time i slightly favor the bullish scenario, this is due to several reasons.
1) The presence of a clear 3 wave cycle as highlighted in the ratio, whilst this does not mean that this pattern must repeat, markets do tend to offer clear points of symmetry.
2) The price action for gold is far more bullish than silver, at the end of the day the price action on gold is much more conducive to a higher Gold/ Silver ratio. This is evident in several technical indicators, an example being the fact that Gold has reclaimed the 50% Fibonacci level, whereas silver has yet to reclaim the 23.6% retracement.
3) Currently the ratio has been respecting the lower trendline of the rising wedge pattern, and has been able to hold the 21 monthly ema that being said, 2 closes below this trendline would confirm a breakdown of the rising wedge pattern.
Overall the Gold/ Silver ratio appears to be heading higher, likely to around the 95-100 range, unless the lower trendline of the rising wedge is decisively broken.
I like your analysis, what do you think will happen once this rising wedge starts to break down? What are your visions for gold and silver after this scenario, thanks.
Profit_Link
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@allegorycave, Thanks for the comment, my outlook for silver and gold are very bullish, particularly if you are buying the physical metals.
In terms of outlook i am expecting to see further strength in silver (over the coming months) due in part to the quarterly squeeze that is present in silver
<--- Quarterly squeeze article
I am also very bullish on gold, however due to the GSR being so elevated, my preference, at least until the GSR normalizes is with silver.
Overall i think that we will see broader strength in the metals, but we will also have to endure some severe pullbacks along the way (which you should be able to appropriately hedge).
allegorycave
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@Profit_Link, What is there to hedge if I buy from refineries?
Profit_Link
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@allegorycave, If you wish to hedge your metal positions, you can look at buying Put options on GLD or SLV, if you are solely buying physical metals, than hedging is less of a concern.