Gold, Silver and the Dow

The following is an extract from commentary that was posted at www.speculative-investor.com on 12th May 2002.

Gold versus Silver

In our 6th May commentary we said that our expectation has been, and still is, that gold would out-perform silver"until the general level of commodity prices, as represented by the CRB Index, began a major up-trend. Being as much an industrial commodity as it is a form of money silver tends to do better than gold during those periods when commodity prices are trending higher." This comment sounds quite logical (even if we do say so ourselves) and, strangely enough, is supported by what has actually happened over the past 30 years.

Below is a long-term chart comparison of the silver/gold ratio and the CRB Index. Note the general tendency for the two to trend in the same direction over extended periods, indicating that silver does usually out-perform gold when the general level of commodity prices is in a long-term up-trend.

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There are, in fact, two times when silver tends to out-perform gold - when commodity prices are trending higher or when the stock market is in a multi-year up-trend. Strength in silver relative to gold was a characteristic of the period from 1991 through to 1999, an era of considerable stock market strength. It also occurred during the cyclical stock bull market of 1975-1976 and during the 1982-1983 stock market rally.

Further to the above, gold will probably continue to out-perform silver until either a) the CRB Index provides some technical evidence that it has commenced a major up-trend, or b) the stock market reaches a long-term bottom. As we've previously explained, a likely time for a major stock market bottom to occur is during the period from October-2002 to January-2003.

Even if silver performs poorly relative to gold for the remainder of this year it is still likely to do well in absolute terms. There is little chance that the gold price will move sharply higher without the silver price also experiencing a sizeable gain. Furthermore, if silver under-performs gold it does not necessarily follow that the stocks of silver mining companies will under-perform the stocks of gold mining companies. As stated in our 1st May commentary:"The gold stock universe is tiny compared to the overall stock market or even compared to many individual corporations, but it is enormous compared to the silver stock universe. As such, once the silver price finally breaks above the brick wall of resistance at $4.80 the silver stocks will fly." The combined market capitalisation of all the word's silver producing/exploring companies is so small that even a small amount of interest from the investing/trading herd could produce massive gains in the prices of silver stocks.

The Dow in terms of Gold

Lest anyone get the idea that the Dow is close to a major bottom and the gold price is close to a major peak, below is a long-term chart of the Dow/gold ratio. Looking at the big picture we can see that the Dow, in terms of gold, is still very close to the secular peak reached in 1999. Note that the previous secular peak was reached in 1966, following which the Dow trended lower for 14 years relative to gold. In a world where the US$ is losing its purchasing power at an accelerating pace a substantial decline in the Dow/gold ratio will tend to come about more from a rising gold price than from a falling Dow.

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Acknowledgement: The Dow/Gold and Silver/Gold ratio charts included in this article are modified versions of charts available at Nick Laird's (Sharefin's) excellent web site: http://www.cairns.net.au/~sharefin/Markets/Master.htm

Regular financial market forecasts and
analyses are provided at our web site:
http://www.speculative-investor.com/new/index.html
One-month free trial available.
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Copyright 1999, 2002 Le Metropole Cafe. All rights reserved.


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hi:-)

hab gerade auf dem flohmarkt zugeschlagen, 31 unzen (onzas,maples, und noch was
für 194,66, hab ich hier letztens richtig gelesen reinhart das du mühe hast welche unter 12€ zu bekommen
wenn ja hab ich ja ein richtiges schnäppchen gemacht:-)
war allerdings auch ne zähe verhandlung ;-)
mfg
karsten


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>hi:-)
>hab gerade auf dem flohmarkt zugeschlagen, 31 unzen (onzas,maples, und noch was
>für 194,66, hab ich hier letztens richtig gelesen reinhart das du mühe hast welche unter 12€ zu bekommen
>wenn ja hab ich ja ein richtiges schnäppchen gemacht:-)
>war allerdings auch ne zähe verhandlung ;-)
>mfg
>karsten

Wie wärs: Für 10 % mehr schickst du sie sofort weiter an mich. Das ist eine sagenhafte Jahresrendite für dich!

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>Wie wärs: Für 10 % mehr schickst du sie sofort weiter an mich. Das ist eine sagenhafte Jahresrendite für dich!

hi jürgen:-)
sorry aber ich glaub du weißt das ich zu den jägern und sammlern gehöre ;-)
die indirekte aussage werte ich als ja war ein schnäppchen
fahre in den nexten wochen mal direkt zu dem händler mal sehn ob noch mehr abfällt
mfg
karsten

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