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Gold/Silver Ratio

May 25, 2009 - It has taken a lot of patience, but the gold/silver ratio finally sliced through support at the 68-69 area. The ratio has clearly broken down, meaning that silver is now outperforming gold.

Gold/Silver Ratio - 25 May 2009

That outperformance is what I like to see. It is a signal that money is moving into the precious metals. Because the demand for silver is more sensitive to money flows than gold (in economic terms the demand for silver is elastic while the demand for gold is inelastic), silver rises more rapidly in price than gold, which perforce means their ratio falls. It is an event that is bullish for both precious metals, and as a result, we can reasonably expect that higher prices are coming for both gold and silver.

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