Is Silver ETF Signaling A Bull Around The Corner?

Bullion and the exchange traded funds (ETFs) that track these shiny desireables have seen excitement over the last few months. What does this mean for us?

Signs of a Bull? Generally, this is indicative of a bull market. Overall, bullion has not made major moves, but gold, on the other hand has seen some sharp rises. Surprisingly, the major reason for this surge in gold is silver. These two precious metals have a rather distinct correlation. In a real true bull market the ratio of silver/gold falls and in a bear market the ratio increases.

Last year, this ratio was in the low 80s, and has dropped an astonishing 17.6% from its peak, to close at 69.5 late last week. Some experts believe that the ratio will get down to 40 and may even drop as low as 20 in the near future, states Peter Brimelow of Market Watch.

A Changing View. This move in the sliver ratio illustrates that the sentiment toward the whole sector is changing. What is odd though, is that this rally seems only to be stirring up in the Western Hemisphere. India, the world’s largest consumer of gold is still standing on the sidelines and has yet to enter the market, contrary to the nation’s buying up of gold when it was trading at lows in the fall.

This doesn’t mean that we should go out and “boil the ocean” buying up everything in sight thinking that the entire market is going to surge. It is just a possible sign that an economic recovery may be in the near future.

Grabbing exposure to silver stocks is generally difficult, but one way to do so is to take a look at the iShares Silver Trust (SLV), up 38.4% over the last 3 months and well above its 50- and 200-day moving averages.

For full disclosure, some of Tom Lydon’s clients own shares of SLV.

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Comment by yixter

2009-02-16 10:43:48

when you say “the ratio of silver/gold” I guess you must have meant “the ratio of gold/silver” then the numbers 80, 60s started to make sense

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