Gold to Silver Ratio Still Favors Gold

The gold to silver ratio still suggests that gold will outperform silver over the coming months. Following the higher target for the ratio an important inflection point will materialize, which will represent the chance for silver to outperform gold once again. Until that time, we suggest that investors favor gold over silver for relative outperformance, and should wait for a major opportunity for silver to outperform gold again starting in 2023.

The Ratio’s Recent History

The gold to silver ratio measures the number of ounces of silver required to purchase one ounce of gold. Since the all-time high set in 2020 at 128 during the Coronavirus liquidation panic, the ratio proceeded to compress into 2021 as inflationary fears and rumors of a “silver squeeze” began to surface. The ratio hit a low of 62 in late January, 2021: in other words, silver outperformed gold by a factor of more than 2:1 in a little over a year.

Trending Higher Again

Since the 2021 bottom, however, the ratio has begun to move in the opposite direction, higher, in favor of gold.

In this case, the move higher in the ratio has been defined by the clear rising channel (blue) in favor of gold. Unfortunately for silver investors, the ratio has just triggered a breakout above the 85 level (red callout), which yields a higher target until proven otherwise.

What this breakout means is that silver should be set to underperform gold, still, until at least 2023.

What is the Target?

In the case of the gold to silver ratio, when we measure the amplitude of the consolidation below the breakout point, we arrive at 23 points (black callout). Thus, our expectation for the gold to silver ratio is that the market will reach a level of 108 (green callout), defined as equal to the 23 amplitude, added onto the breakout point of 85.

From the present level of 88, an advance to 108 implies that gold will outperform silver by 22.7% until the target is achieved, or that silver will underperform gold by the same margin.

While it is conceivable that this underperformance could happen as both gold and silver rise in price, generally speaking throughout history as the gold to silver ratio advances it tends to coincide with weakness in both metals’ values.

After the target of 108 is achieved, we will perform independent analysis of the ratio’s behavior to determine if that figure will indeed represent the final top. While 108 will represent a logical point for a top, there is no guarantee that a market will always stop at a target. The market could overshoot the 108 target, and continue advancing in favor of gold, for example, even after the target is achieved.

Negation of the Target?

What would it take to negate this expectation of a higher target in the gold to silver ratio?

In this case, we would need to witness dual-weekly closes below the 80 figure (black line), the lower boundary of the resistance zone which defined the breakout in June. If the breakout is nullified, we can proceed with confidence immediately that silver is set to outperform gold for the foreseeable future.

At www.iGoldAdvisor.com, we will be favoring gold-related investments over silver until the gold to silver ratio either reaches the 108 target, or negates it by closing back below the breakout point. In addition to bullion, we will be making highly-leveraged investments via private placements, which offer investors free warrants in gold mining companies in addition to their shares. Investors should favor gold until the target is achieved, but be preparing ahead of time for silver to outperform again potentially starting in 2023.

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