Your humble correspondent used to watch this relationship very closely until the latter the latter part of 2008 made it go haywire, but I’ve noticed it popping up on the radars of chartheads recently and being featured in essays good and bad.
What do we see here? There’s no return of the so-called benchmark of 50:1 in the near future, that’s for sure. Techies will grab the MACD and RSI both clearly oversold and say the bias is likely to swing back towards gold in the near future. I agree. Those moving averages also seem to be heading for a pinch moment.
Final thought: Silver is more constrained by traditional Adam Smith-like factors of supply and demand. This because its supply is largely as a by-product of industrial metals and its demand has a larger proportion of commodity-based uses. It’s not simply a store of wealth like gold. Silver strengthening against gold would imply, therefore and theoretically, a better world economy, so maybe we can follow this ratio chart as a sentiment guide. When is the recession going to end? Bernanke’s pie-in-the-sky 2009? Roubini’s L-shaped lost decade to come? My own thumb-in-the-air guess of late 2010? Maybe our old friend the GSR can help map it for us.