My research team and I started exploring the relationship between the Gold-to-Silver ratio and the S&P 500 to find trends in Metals and the US Stock Markets. We called the collapse in the Gold-to-Silver ratio accurately back in March 2020, and we believe the current setup in the S&P to the Gold-to-Silver ratio shows the move in Precious Metals is far from over.
PLAYING WITH RATIOS – WHAT CAN WE LEARN
The Weekly Gold-to-Silver ratio chart below highlights our predictions from late March 2020 where we suggested the incredible spike in the ratio value was similar to the spike that took place in 2008. We identified a Flag/Pennant setup after each spike in the ratio volume and predicted a downward ratio decline would continue – pushing both Gold and Silver higher. We also suggested that Silver would begin to rally much faster than Gold throughout this move.
METALS MAY RALLY 350% TO 750% FROM CURRENT LEVELS
Now, with the Gold-to-Silver ratio sitting near 69.50, we believe another important ratio component has come into play for Precious Metals – the S&P to Gold-to-Silver ratio. If our earlier research continue to be correct, then the Gold-to-Silver ratio should continue to decline targeting levels near or below 50 at some point over the next 3+ years.
We believe this process may take place in a very transitional global stock market. When we suggest this term “transitional”, we are suggesting a very fluid and aggressive global stock market where capital will actively move from risks to opportunities very quickly. As the global environment shifts from stability to moderate crisis over the next 3+ years, we believe more and more capital will attempt to find safety in Precious Metals and other safe-havens.
The one thing that is really starting to concern me is the news and talk that the riots and protests in the US may get much worse over the next 6 to 12+ months. From a technical standpoint, it is very difficult to define technical indicators that attempt to quantify the effect of these riots and destruction to local economies. Although, we do have one technical analysis component to rely upon – price – since it always discounts external factors faster than the news can print stories. Because of this, we believe the new ratios we are sharing with you today are very important.
Please take a look below at our new Monthly ratio analysis of the SPX500 to the price of Gold. We believe this ratio chart highlights how global investors are moving away from safety, shown with rising ratio levels on this chart, and back into safety/metals, shown with declining ratio levels on this chart. Let’s take a look at a bit of history.
From 1981 to the peak in 1999 (nearly 18 years), investors shrugged off risk and piled capital into the US and global stock markets as the Reagan, Clinton, and DOT COM rallies ran back-to-back. The ratio rallied from low levels near 0.30 to high levels near 5.60. This represents a tremendous increase in the global stock market valuations while precious metals languished in a lower/sideways price range. Then, in late 1999 and early 2000, the ratio peaked and began to move downward. That downward ratio trend lasted nearly 10 years in total and produced the $1923.70 peak price in Gold in Sept 2011. The real rally in Gold didn’t begin to accelerate until mid-2005 – nearly 5 years after the peak in this ratio chart.
We believe the current move in Gold and Silver is similar to the 2000~2005 initial impulse move after the peak in 1999 (highlighted in LIGHT BLUE). This impulse move sets up a bigger, more aggressive downside price trend as the rally in precious metals accelerates and moves in a parabolic trend when markets near peaks (highlighted in RED). These aggressive moves are typically 2x to 3x (or more) than the normal precious metals price ranges and can be very explosive in nature. If we are correct in our analysis, the end of 2020, and throughout the next 2 to 3+ years, we may enter one of these explosive price phases in precious metals because of the current setup in this SPX500/Gold ratio pattern.
If the ratio declines from the current 1.78 level to a level near 0.40, this would represent a 77% decline. Our researchers believe this could prompt a 250% to 350% rally in Gold if the SPX500 stays above $2,200 (near the recent March 2020 lows). This would suggest that Gold could rally to levels above $5,500 to $7,500 over the next 3+ years.
Our researchers applied the same ratio analysis to Silver. Comparing the SPX500 to Silver ratio setup similar types of patterns, yet we noticed the impulse move in Silver is often shorter in time as Silver attempts to rally faster than Gold to make up for depressed price levels throughout the rally phase of the ratio levels. Silver, as many of us already know, tends to be the forgotten little brother to Gold.
Our researchers believe the impulse move in Silver has already completed. We believe the next phase of the decline in the SPX500/Silver ratio will begin the real fear move in Silver. This suggests a rally to levels above $36 to $45 fairly quickly – which will be very near to the all-time high of $49.82.
Using similar ratio analysis calculations in the chart below, we believe the upside price target for Silver would target 5.5x to 7.5x current Silver price levels, assuming the ratio level falls to levels below 0.30. That places the ultimate peak level in Silver near $156 to $213. As incredible as that may seem, if the SPX500 stays above the $2,000 price range and does not…
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