Valuation Measure: Gold Silver ratio
How many ounces of silver is required to buy one ounce of Gold
Gold and silver typically trade within a range of 20-70 ounces of silver to the price of gold. When the ratio reaches 70 - it indicates that Silver is very undervalued and should be bought. Also over last 100 years -Gold was valued at an average of 47 times silver on a per-ounce basis.
At current rates, you need more than 72 ounces of silver in order to buy one ounce of gold. It means Gold is way overvalued compared to Silver
Fair Value of Silver based on the Historial average of 47
Assuming Gold stays at current rates - Silver should be trading at $27. It means an upside of 54%
You should get worried when price action follower starts talking Valuations 🙂
My Investment thesis is very simple:
When any asset shows strong up move after a long period of underperformance - it tends to surprise on the upside.
Once demand kicks in for the asset, the supporting factors like Valuation only fuel momentum.
Silver has made a big move in 2016 after a long period of underperformance. Here's the Silver daily chart
Now the Silver has pulled back to Strong Support zone of 200 dma
As long as Silver trades above 200 dma/levels of 17 - one can hope of strong upside in Silver in next 4-10 months. The Big risk for Silver: Strong Dollar. Hence any investment position should have stop loss below 17.
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers