(Repeats Thursday's story with latest price moves and
For the last few months, a world that is fearful about fiat
currencies losing value due to reasons ranging from demand-led
to the Fed printing more dollars in the US has been
increasingly embracing gold as its dearest choice of
Yes, commodities as a whole, among them precious metals in
particular, were all at the gainer's end due to this, but silver
outpacing the yellow metal was interesting for many.
However, a study on charts shows that silver may not continue to
enjoy the status of being better investment alternative over gold
in the short-to-medium-term period. And not only that, any
correction in both the metals (which looks imminent as per charts
and market experts) will happen with the white metal falling much
steeper than its yellow counterpart.
Performance in the recent past
So far in 2010, when gold rallied by around 30 percent to its
all time high of $1424.1 an ounce on Tuesday silver was up by more
than 74 percent at its 30-year high of $29.33 per ounce.
Commodities were largely down in the third week of October but
after gaining ground on October 22, silver rose by around 28.6
percent to its peak while gold was up by only 8.3 percent.
The fact that silver is not only a precious metal but is one
with industrial utility as well probably gave extra boost to the
metal but the trend has now reached a level where a reversal is
imminent, at least for technical reasons.
History of gold/silver ratio
The ratio of price of gold to that of silver used to be roughly
in a range of 46-78 from 1994 and what is interesting is that the
ratio never had a long life around 46-50 region - it always jumped
from there soon, or in other words, gold picked up pace and
eventually did outshine silver.
Chart number 1
attached (plotted on year-end prices of both the metals based
data) shows the correlation of silver prices with gold/silver
It is evident from the chart that the peak on the wave formed by
silver during 2005-2008 period correlated to a gold/silver ratio of
around 46 and then the yellow metal rallied more sharply than
silver, taking the ratio to near 78 levels by end-2008. Go backward
in chart and we can see a similar price movement in 1997.
A similar study on the recent months - from 2007 January to 2010
November reveals the same. See
Chart number 2.
Now we have the ratio once again in the 50-region and it looks
like a fair advice by chart busters to be cautious on going further
long on silver.
Other factors in support of the yellow metal
The dollar is expected to remain under pressure with most market
participants seeing the Fed's quantitative easing to be expanded
while many majors in the Asia-Pacific are visibly in a tightening
mode. This is obviously a gold positive but of course, it could
also have silver as an implied beneficiary.
At the same time, as silver prices are a lot dependant on
industrial demand, any news of cooling in major economic
will hit the white metal more severely, but its golden
brother may still be considered a safe haven.
Even if the greenback gets on track due to reasons like
short-covering - a
report says that net dollar short positions were near record
levels a few weeks ago - a subsequent fall in the precious metals
will all likely see silver losing more in percentage terms compared
to gold. On Tuesday, when the dollar gained in the forex market,
the yellow metal fell nearly 1.2 percent while silver dropped by
The gold silver ratio that fell to its lowest since 2006 at
48.55 as per Tuesday's highs has moved up to 51.9 levels by
Commodities fell across the board on Friday after a hawkish
inflation data from China ignited rate hike worries by the world's
second largest economy. By 1045 GMT Friday, gold was down 2.4
percent from its record high while silver dropped 8.1 percent from
the 30-year high it on Tuesday.
Projections still see steeper falls in silver
Momentum indicator 14-day RSI on daily chart shows gold has
fallen well below the 70 mark, but still slightly biased to the
overbought zone, the metal eyes immediate support near $1372.7, or
the 23.6 percent Fibonacci retracement from late August levels.
Next support is seen at around $1362, which coincides with the
median of period 20, deviation ±2 Bollinger band. Support number 3
can be 38.2 percent Fibonacci of $1343.
See chart number 3.
At the same time, silver's 14-day RSI has just fallen below the
70 mark on the daily chart and has already testing support around
the 23.6 percent Fibonacci from late August. The next target can be
around the 38.2 percent Fibonacci, pointing to $25 levels. Further
on, the white metal targets $23.5 (50% Fibonacci meets Bollinger
median) and as support number three, it aims $23.0 as projected by
50-day simple moving average (
See chart number 4.
At first level of support, gold will be 3.6 percent down from
its Tuesday's high whereas silver will be 14.8 percent down. At
support number two, the yellow metal will be 4.4 percent down and
silver will be weaker by 19.9 percent from the recent highs, which
clearly shows the fall in silver can be as steep as its rise was in
the recent weeks and months over gold's.
Chart number 5
shows that silver is now exactly at a point where a convergence
from gold is highly likely the same way it moved by the end of last