Chart: Which countries are falling behind in gold mine production
India tops the global ranking with demand nearly 50 times that of its mined supply.
In our eye’s, when it comes to investing “Relative Value” is ‘everything’! Why? Because currencies are controlled and manipulated by governments so “Price” (measuring an asset’s value with a currency) cannot be relied upon.
Where do we see some relative value these days? Let us first clarify our point using a few historical examples and then we will provide some insight into today’s market.
In past articles we clearly illustrated the relative value of the “Dow Jones to Silver” and the “Dow Jones to Gold”.
In the above chart, when the Dow Jones increases in value relative to gold the ratio (black line) heads up and when the metal outperforms the Dow Jones, the black line heads down.
When we initially published the above charts back in 2007, we were suggesting that we expected those ratios to break their 27 year support line which would cause Silver and Gold to rise in value relative to the Dow Jones (US stocks). Since this period of time the following took place:
From the above we can clearly see that when the ratio’s 27 year support lines were broken, the price performance of silver and gold trended up and the Dow Jones trended down. The above insight was extremely profitable.
Currently we see another relative value opportunity.
The above monthly chart suggests that relative to Gold, Silver may be just about to break to the upside of a 30 year undervalued resistance line. Similar to the Dow vs. Silver ratio examples above, this could turn out to be quite bullish for silver. History would suggest that the longer a support or resistance line has been in place, the greater the significance it will hold once broken.
The above weekly chart provides a little bit more detail in the short term which suggests that relative to Gold, Silver may have just broken to the upside of this same 30 year undervalued resistance line. In simple terms this means that Silver may greatly outperform Gold in the coming months or years. Logically this makes sense as gold has been hitting new ‘all time’ highs since early 2008 while silver is still well below it’s all time high set back in 1980.
This insight suggests that gold investors may want to trade some of their holdings into Silver as this market may have some serious potential for growth. Historically when silver has increased in value, it has done so like a ‘rocket’. This latest development could be big news for the price of silver and silver investors.
At investmentscore.com we like to focus on the big picture trends in the markets as we believe this is where the “big money” is made. Obviously in the short term anything can happen but we find a little more stability and predictable trends in the “big picture” and using “relative value” analysis. Visit investmentscore.com to sign up for our free newsletter, read more articles and learn more about our unique and proprietary strategy.
October 22, 2010
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