Gold began testing the $2,700 an ounce mark during early Thursday trading, as silver briefly eclipsed a 10-year high above $32.50, pushing the gold-silver ratio to its lowest levels since July.
Economic analyst Jesse Colombo said he expects a breakout in silver prices to reverse the trend of gold outperforming over the past three months.
In fact, Colombo isn’t just predicting a breakout; he’s calling for a $50 an-ounce intermediate-term target that represents the double top created by the white metal in 1980 and 2011.
Respect the ratio
The gold-silver ratio is hovering around the 84 to 1 level. Over the past 50 years, it has traded as low as 20 to 1 and, at times, more than 110 to 1.
The modern-day average hovers between 60 and 70 to 1, though the metric often fluctuates rapidly and experiences high volatility.
Colombo said a continued reduction in the gold-silver ratio would confirm the start of a silver rally that could see the white metal outperform its more expensive alternative.
Base metal effect
Precious metals surged this week on news that China was unleashing its biggest stimulus package since the 2008 financial crisis as deflation concerns mount. Base metals also reacted strongly to the news, as investors speculated the infusion of capital into the markets would boost Chinese manufacturing and infrastructure spending.
“The price of copper is often an underappreciated factor in silver’s performance,” Colombo said. “Copper’s decline over the past several months has dragged silver down with it, but the copper rebound I’ve been anticipating following a technical breakout should significantly strengthen silver’s rally.”
Copper prices have strongly trended downward since making a high of more than $5 per pound in June. The metal reached a low of $4 per pound in August but has since rebounded to the $4.50 range. Augusta Precious Metals $0 (10 Years) $50,000 "Best Overall" by Money Magazine, Award-Winning for 6 Years, Thousands of 5-Star Rankings Goldco Vary $25,000 Industry leader with over $2 Billion in gold and silver. Top rated precious metals company with buy back guarantee Birch Gold Group Vary $10,000 Since 2003 BGG served over 32,000 customers. A+ rating with BBB, AAA from BCA & has multiple celebrity endorsements Colombo speculated that gold’s recent performance has been extremely beneficial for silver prices, but soon that trend may operate in a reverse fashion, with the white metal leading the way. “Gold, a major driver of silver prices, is generating a tailwind for silver after breaking through two key resistance levels in the past month and a half,” he said. “gold’s breakout across multiple currencies sets the stage for an imminent surge toward $3,000.” While buying physical silver or silver-backed ETFs are always an option to play an expected rise in prices, Colombo singled out the Amplify Junior Silver Miners ETF (SILJ) and Global X Silver Miners ETF (SIL) as suggestions. Speaking of SILJ, he said, “A decisive, high-volume close above the $13 to $13.50 resistance one would indicate the start of a rally for both silver mining shares and silver itself. After its sharp rise on Tuesday, SILJ is very close to breaking out.”Expand Details
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The mining play
