Gold-SP500 Performance Chart - Daily
When the ratio is rising, it means gold is outperforming silver, and when the line is falling, the first term is doing worse, i.e., silver is doing better. In other words, when the ratio is high, the general consensus is that silver is favored. Conversely, a low ratio tends to favor gold and may be a signal it’s a good time to buy the yellow metal.
Despite the gold-to-silver ratio fluctuating so wildly, another way of using it is to switch holdings between silver and gold when the ratio swings to historically determined "extremes."
Read more about the ratio at the bottom of this page.
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Shakespeare’s writings provide a gold mine for quotes, both literally and figuratively. He was certainly onto something beyond gold’s lure when he wrote: “foul cankering rust the hidden treasure frets, but gold that’s put to use more gold begets”. Gold has long been used as a protection against inflation and as a safe haven investment. Given the current economic environment, you too may be increasingly thinking about investing in gold. So, what’s the best alternative?.
Physical Gold - Bona Fide with Baggage
Physical gold – think gold bars and coins. These are readily available from gold dealers and online retailers. You can purchase it in various weights, making it relatively flexible – from 400 ounce bars to fractional ounce coins – bear in mind, though, the mark-up is likely to be a lot higher for smaller sizes. This mark-up shouldn’t be taken lightly; we have found premiums over the spot price of gold approaching 40%! If you need your gold delivered, it’s possible that you’ll pay additional shipping and insurance costs. Be sure you are aware of the premium you’ll pay, along with any other costs, before committing to purchase. Once you’ve bought your gold, make sure you have a safe place to store it! A safe buried in a deep hole in your backyard might suffice, but most people prefer a secure local vault. If this is the case, you’ll need to factor in the additional storage costs as well as recommended insurance. The reputation of a gold dealer is an important consideration; you want to be safe in the knowledge that you are buying gold which has had its weight and purity properly authenticated.
Regardless of your reasoning, owning the ultimate currency is not as straightforward as you might think. To help out, we’ve compiled five common mistakes associated with investments in the precious metal. Avoiding the common pitfalls may help provide you with the desired investment exposure while minimizing any unanticipated drawbacks. Ultimately, we hope the following list can help reduce investment headaches associated with your future gold investments.
1. Gold Stocks Ain't Gold
A frequent mistake made by investors is to invest in gold mining companies (both juniors and majors) as a substitute for gold. There are a couple of reasons why this may be a mistake. Firstly, gold mining company’s stock price does not precisely track the price of gold.
That’s because lots of other factors influence the share price of a company: management, cost pressures, mining diversification, stage of the mining process, to name just a few.
When it comes to the gold market, supply and demand data is readily available. A curious investor can quickly find data on annual production, annual consumption and total above ground stockpiles on the internet. Look at whether production or consumption is rising or falling compared to past years. Is the cost of producing an ounce of gold rising or falling? The answer to this question will shed light on the fundamental state of the gold market. You should use fundamental knowledge to determine a basic price bias – will the price of gold rise or fall in the future? However, fundamental knowledge alone is not enough to make money buying and selling a commodity like gold. This is particularly true when it comes to shorter-term trading.
For ten years now the gold market has moved higher. There has been a long-term bull market move in the price of gold. Even when a market trends for a long period of time it rarely goes up or down in a straight line. Close attention to technical signals will enable you to profit. Those profits can be more substantial than catching an entire move. There are always price corrections even in the most powerful long-term trends. It is important to use technical signals in order to decide when the right time to buy or sell is. There are so many technical tools in use today but the author has one favourite when it comes to buying and selling gold, the stochastic oscillator. Whether you are new to trading and investing or you are a seasoned professional use all of the tools at your disposal. A combination of fundamental and technical analysis will leave no stone unturned. Keep up to date on all of the fundamental supply and demand data out there.
Gold related Content
The way to make an investment in gold generate cash is to own it in the form of exchange-traded funds and to periodically sell call options on those ETF shares. There are several gold ETFs that will work for this purpose. All of them own gold equal to some fraction of an ounce for each share. The oldest and largest of these is GLD, the SPDR Gold Trust. Each share provides indirect ownership of 1/10 of an ounce of gold. The shares rise and fall in tandem with the price of gold.
Gold has historically had lower volatility than other Commodity products and Stock Index Futures. Having an asset with lower volatility in your portfolio may help to see more consistent percentage gains along with potentially lower risk. If you were to look at Gold and compare it to an asset class, the most closely related would be the currency markets.
Gold vs. Silver
When trading we are always looking for the instrument that will outperform the others , that’s why we need to take a look at the Gold-Silver ratio chart to understand the current market situation before investing in the metals . The weekly chart showing that the cycle from 2011 lows has clearly ended in early February and since then the instrument started the correction lower ideally looking for the 50%-61.8% of the rally in 3 swings which can be currently confirmed as Silver is up +27% since the start of the year while Gold is only up +14% . We need to understand that the market is correlated and it’s just moving in different dimensions so when there is a shift in a major trend it should affect all the instruments , to clarify the situation I added DXY ( US Dollar ) & USDCAD ( Commodity Dollar ) to Gold/Silver ratio chart .
What else can we learn from the analysis of the historical gold-to-silver ratio? Well, the chart below shows an interesting pattern. The peaks in ratio are bullish signals, while the bottoms are bearish. Indeed, the gold-to-silver ratio peaked in 2003 and later in 2008, pretty good moments to invest in both gold and silver. Similarly, the bottom in 2011 was an important selling signal, was it not?. During bull markets in the precious metals, gold starts to rally earlier, while silver lags and only later catches up with gold. It makes sense since silver functions mainly as an industrial metal.