As we recently predicted here[1] (when silver was $16.40/ounce), here[2] (when silver was $16.41/ounce), and here[3] (when silver was $16.35/ounce), the gold/silver ratio topping 80 has once again proven to be an infallible buy signal.
The silver price has never failed to outperform gold once the gold/silver ratio hits that magic number of 80; once it does, silver has always rallied. As of this writing, silver is trading at $17.21/ounce at the gold/silver ratio has ticked down to 75.
But if history is any guide, this is just the start of silver’s outperformance[4]. The three times the gold/silver ratio topped 80 in the past, silver’s worst performance going forward was a 40% rally. The other two times? It went up over 300% and 400%.
This is the best of savvy investment strategy; take a simple mathematical equation (the gold price divided by the silver price), and track historical price behavior. When relative valuations hit extremes and then revert to historical means, without fail, time and time again, we seek to buy at these undervaluation extremes and wait for the inevitable reversion.
In like fashion, when the stock market is more overvalued than it has ever been before[5], we don't get cute and try to figure out how much further the bubble can expand. We get out and wait for the inevitable crash[6].
That's why we’ve highlighted the silver opportunity again and again when the gold/silver ratio tops 80.
One of my favorite indicators to look at when assessing prospects for silver prices is the gold to silver ratio. This essentially shows how many ounces of silver...