Back on April 12th and again on June 13th, we mentioned the tremendous opportunity developing in the gold to silver ratio trade. While readings above 80:1 are fairly rare, readings in the mid-90s are extremely rare and we wanted to bring that to your intention. Below is the long-term historic chart to refresh your memory.
Our comments on June 13th were either fortunate or prescient since that was almost the precise turning point in the ratio action between the two metals.
What about the near-term action? Well, the updated short term chart shown next confirms pretty much what we said. Since around the first of July, gold and silver both have performed well, but silver has performed better.
Just the drop from 96 to the current number around 80, over the past two trading months, has caused silver to more than double the return of gold. Over the past 42 trading days (there are 20 trading days in a month), silver is up 19.6% while gold is up 7.64%.
Are you too late for the opportunity? The answer is no. We are still in the range of previous peaks (above 80), and as this bull market in both metals’ advances, there should be better performance for silver.
Should you be selling gold to buy silver? To some degree, yes. As a tactical trade, doing that with a portion of the gold portfolio could earn additional profits. However, gold remains the monetary metal as demonstrated by recent large central bank purchases, so this strategy must be implemented with moderation. We still regard gold as the better long-term hedge against monetary turmoil.
Simply adding silver to the portfolio might be a better idea. Adding some silver, and participating in the likely contraction of the ratio, looks like a reasonable thing to do.
Charts courtesy of Stockcharts.com. Information is derived from reliable sources but results cannot be guaranteed.