Monday, 25 April 2011

Leverage of silver to gold getitng insane? 2011-04-25

I listened to Bill Haynes and Dan Norcini on King World News weekly metals wrap this weekend 23 April 2010.

Bill Haynes said the market is getting a little frothy looking at the trading at his shop. Also, for every $ invested into gold, $2.50 going into silver at CMI Gold and Silver. He said silver may pop to $50 and then a correction possible.
Dan Norcini mentioned Asian market silver $46.80 gold $1513 Fri morning:
 Bill Haynes said that gold was up nicely but angle on silver is very steep – many waiting for correction not one yet – may drop hard.

Eric King mentioned gold +$18 silver +$3.48 for the week. So the ratio of the move was 5.172:1 on gold:silver in $. That’s 1.2% in gold and 7.4% in silver. That has silver moving 6.25 times as fast as gold over that week!

Compare that to 2 weeks previously: 9th April 2011, gold +$45 silver +$2.87, $ ratio 15.67:1 in $ terms (cf Isaac Newton historic gold:silver ratio) prices were $1475 Au and $42.26 Ag, so silver moved about 2.3x as fast as gold in % terms.

So it’s gone to an extreme this week ending 23 April.

Maybe we are in for a sharp correction… Well we got one, silver down $3 on Easter Monday, gold down about $15; gold down only $5 for each $1 in silver ,so the leverage worked the other way! Silver down 3/49.5=6% and gold down 15/1500 = 1%. So silver moved 6x as fast as gold on the downside too!

No wonder many of the gold stocks have been lagging a bit. Maybe people might have been buying silver instead, to get their 2x to 6x leverage to gold!

I have also mentioned in previous posts the Silver Leverage Indicator (SLI) by Roland Watson, which would probably be analogous to the RSI on the silver:gold ratio as used by technical analyst Ross Clark, 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, although he uses a kind otrailing or rolling 4 year average for this indicator. That would therefore require Ag:Au % leverage of 2:1 to be sustained for a couple of years before a top was in, I guess.

Thought for the Day:I wonder if the precious metals stocks lagging the physical metals is a kind of backwardation – i.e. people have been buying the metals for delivery now, rather than buying metals in the ground that cannot be delivered yet.


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