Wednesday, 20 April 2011

Comment on Ross Clark's analysis $43 silver $1600+ gold 2011-04-22

I just commented on Ross Clark's latest interview about gold and silver on Howe Street:

Interesting as always from Ross. However, is there not something of a contradiction between the upside target of $1550-1600 for gold and the $40-43 target for silver that has already been exceeded. Silver is still moving more than twice as fast as gold in % terms. The Kitco chart currently shows $2.70 up in silver and $28 up in gold in the last 3 days, low to high. That's about 10:1 or 11:1 gold:silver in $ terms while the price ratio is still 33:1 ($1505/$45). Silver moving 3x as fast as gold in % terms then!

Though on the S and P's USA debt outlook downgrade, gold and silver spiked up, silver up 60 cents in 7 minutes (as part of 90 cents up in an hour) and gold up $15 in those few minutes too. Silver then took a tumble below the starting point but gold retained a bit of the upmove on the tumble. Ben Davies of Hinde Capital on KWN has spoken of $400 upmove for gold with silver topping near these levels.

However, silver caught up in the last 2 days and is flying AGAIN today on Wednesday!

Interestingly, on Eric King's program weekly metals wrap 2 weekends ago, Eric described a $2.87 weekly move in silver versus a $45 weekly move in gold. Interestingly, the ratio of the gold to silver move is 15.68:1 in $ terms, about the same as the classic Isaac Newton gold:silver ratio under the bimetallic standard and silver's % move being more than twice that of gold, as has been the case for a while.

I also took a look at Silver Leverage Indicator (SLI) articles of Roland Watson, which would probably be analogous to the RSI on the silver:gold ratio, as silver rises much faster than gold, both the SLI and Ross' RSI would go into high territory. A high SLI according to Ronald Watson happens near a top, like 1980, 1998 and 2004 for instance.

However, if a 15:1 ratio of movement continues, you would get the following price combinations of gold and silver on the upside:
$1480/$40 (recently - starting point), $1630/$50, $1780/$60, $1930/$70 and $2080/$80.

So a $1630 target for gold would go with $50 silver unless silver slows down as gold goes up.

We have to consider: What could make that happen? A new Euro debt crisis as Greece's bonds are yielding 13% now? Another debt outlook downgrade of the USA? A stock market downturn? What? Surely the economy needs to take a hit with perhaps the general markets with a flight to gold contuing and silver stalling.

With the same leverage on the downside, a $300 correction in gold to $1180 would take silver back to $25.

However, silver just keeps outperforming gold. Don't you think it will continue to do this until there is a something of a blow off top in both in the next few weeks/months?

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