the decoupling of gold and silver

I have noticed over the past few months that gold and silver seem to have decoupled. That is they don't really trade in tandem as strongly as they did for years.

The price chart for Gold has been acting much more bullish, blowing past the april highs ... while silver has been languishing still trading a good 25% below it's april high.

I think I finally figured out a reason ...

Gold is running on demand from central banks and governments around the world that want to diversify away from the dollar. And these same entities don't buy silver (in the same way). Plus these central banks and governments have DEEP POCKETS and can buy MASSIVE amounts of the yellow metal. The buyers for silver are more focused in the public sector and I think the public sector tends to get more quickly tapped out.

Gold has always "worn just one hat", as a surrogate currency that cannot be inflated.

Silver has always "worn two hats", a surrogate currency hat and an industrial metal hat. It seems like over the past 3 months or so (since the $50 to $30 crash), silver's industrial metal hat has gotten bigger, and it's surrogate currency hat has shrunk.

Silver has been trading much more like Gold's poor cousin with up moves much smaller than the yellow metal due to smaller buying demand. It's interesting. This has been stretching the gold silver ratio. I wonder if Silver will at some point have a snap back rally? or if this discrepancy or divergence will continue for a while.

It will be interesting to watch.

 

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I agree with your analysis. In my opinion, silver will catch up when the hedge funds decide to jump on the bandwagon.

 

Just curious Cloud, why are you assuming silver's large movement in the last couple years has not ALREADY involved any hedge funds? To my view, silver movement has had a lot more to do with Hedge funds, large investors, etc than gold. Gold is the play for banks, central banks, and the like.

Not arguing, just curious on that statement. I could very well be wrong.

Chris

 

Interesting...gold is up $50/Oz and silver has hardly budged.

 

Gold & Silver have not been coupled since the 1930s and they haven't been trading in tandem. Both premises are incorrect.

 

I haven't seen any evidence that would convince me that there has been a lot of speculation in the silver market. The market is so small that if a couple of hedge funds threw several billion dollars at the long side the price would probably have gone up a lot more than it did. Even $1billion could clean out all of the silver in the registered category at Comex unless the regulators prevented the purchase.

I know it is high compared to a few years ago and other metrics, and that warrants caution. But until we see a few $10 up days, I think it's still pretty much a normal bull market and not a top. As the price goes higher I plan to keep selling a little, and like you I realize that I could be wrong -- but that's the way I plan to play it.

Edit: Just to add one more thing, I keep reading that SLV may not own all of the silver they hold, and that could be a catalyst for higher prices too. Not that they did anything wrong, but if someone leases silver and deposits it in SLV for safekeeping, the silver will register as bullion by the lessor and by SLV, so there could be less silver around than it seems. I'm not saying I believe it, but I wouldn't bet heavily against it either.

 

fatima, i dont know how you can say that! well certainly for the past 10 years (since 2001) there has been a TREMENDOUS correlation between gold and silver. Just look at these two 10 year price charts of the two metals (gold on top, silver on the bottom). Do they look similar? YES!!!!

The big divergence is ONLY in the past 3 months where silver spiked to $50 in april, then fell off and has languished since -- while gold has just moved steadily upwards becoming more parabolic recently.

 

Well, actually, silver spiked at $49.85 and the whole reason for the decoupling was the Yakpoo declaration of...

"Thou Shall NOT Have $50 Silver!!"

...just saying.

 

You contend that Gold & Silver are now decoupled as stated in your OP. These charts no more prove that, than what I stated. You can't have it both ways.

 

my point was it was coupled, from 2001 through April 2011 ...

but has become DECOUPLED since April 2011

 

I agree with this point. Silver has had it's run propelled by it's investment value and it's value as an industrial commodity. With a global economic slowdown and sovereign risk all over the place Gold is a better play here.

Regards,

Bluesboy65

 

While gold rose about 40$ today, silver dropped one dollar.

 

i am actually thinking about trading some of my ASE's for AGE's

Right now I have about 60% silver and 40% gold ...

and I wonder with this worldwide financial crisis if I shouldn't flip that ratio and be 60% gold (or maybe even 70% gold)

I still like silver long term ... but I'd like to catch and ride the world government buying wave in gold

 

all I can say is that I sure thought that by 5 pm Monday silver would be up not down.

 

silver has a funny closing time ... so the price you see in the evening is actually it's change since 2pm (or thereabouts)

Silver was up today from Friday's close ... but down from it's 2pm price

 

Certainly gold and silver charts track similarly because commodities in general have been in a bull market. You can chart corn, beans, copper, cotton and see similar trends. The point being during the period you suggest the commodities were coupled their price ratio went from 70 to 1 down to 35 to 1. I agree with Fatima.

 

If you agree with me, read some of my other posts. Gold isn't just a commodity. It's the world's hedge against fiat money. No other "commodity" is held in reserve by central banks and even governments, including the USA as a financial asset. This gives it a unique place in terms of investing.

I've said for most of the time I have been on this forum that Silver and Gold are not equivalent and they have never been coupled (modern times) except in people's minds. When governments continue to be reckless it's gold that will rise. Silver may or may not do so simply because it's driving by other factors. The events of just the last month or so prove this.

Go back into this forum and look at the people who were trying to link gold and silver together. Things such as silver/gold ratios, comments about gubment spending and silver, etc, etc, etc have all been proven wrong in the last month. Look at the mad rush to those 5 ounce ATB silver pucks. People were losing their minds over getting one. What is it now? Silence, because the dreams of silver riches came crashing down in basically one day when the CME raised its margins. Gold in contrast, has continued it's constant rise that is more than a decade long simply because it is directly tied to how fiat money is managed.

Will there be a pull back in Gold. In the near term, I think so. The banksters, wall streeters, and their minions in government are not going to allow this challenge to their credibility and authority to go on without serious attempts to knock the price back down. It's such a mess that nobody can predict what is going to happen, but I expect somewhat of a temporary pullback, but it won't last.

(My advice, if you buy gold, you better buy the form that lets you take possession of it.)

 

Good point about physical gold ... still the GLD is easier to work with in Retirement Accounts.

 

I agree with physical PM as well. Most things I prefer paper assets, but lets face it, in the history of PM there has been a lot of shenanigans with PM "companies" holding your PM. I would always prefer to have my PM position in a SDB or a good home safe.

Fatima is right that silver was "frothy", (my words), and gold was overlooked. I would humbly point out that right now gold may be a touch high, but agree long term it will remain a good store of value. The major problem with buying any PM is simply the acquisition costs/selling costs. They are much higher than most investments, further reiterating the need to hold these assets long term to minimize this cost.

I also agree with what Fatima has said for quite a while, that gold is a major play, meaning it has so much inventory and held by such strong hands its not easily manipulatable. Silver is a thinner market so much more volatile. Volatility is great when its going your way, though. I still say a blend of PM is probably the best way to go long term. Its just like stocks, you can have the right industry but the wrong stock. I wish I would have bought more palladium under $100 an ounce.

Chris

 

OK ... I just put my money where my mouth was.

I just traded 1000 junk Franklin's and 15 rolls of ASE's for 13 AGE's and a small amount of cash. It's interesting but since I acquired these with silver coins bought at much lower prices, my actual cost basis is a bit over $1000 for each 1 ounce AGE.

I still have a lot of silver in my stash, but just wanted to increase my gold holdings. I don't know if this was a wise trade for the short to medium term or not. Time will tell. All investing is, ultimately, a gamble. However if we are going into a slowdown or recession, silver could lag gold as the industrial demand wanes. I really have no idea though.

I wouldn't be surprised to see a big sell-off in gold (maybe a $100 down day) any time -- it's run so far so fast. However, I think that would be just another buying opportunity.

In any case, I bought these AGE's as a hedge against dollar devaluation for the next 3 to 5 years, so I don't sweat the day to day or week to week moves.

By the way, I have never seen an AGE plastic tube before ... it's kind of cool ... this is almost 3/4 filled with what I bought. A roll of AGE's is sort of a wild thing to behold. These are off to my bank's safe deposit box now.