If Gold Sells Off, Whither Silver? - Brad's Desktop - Hard Assets Investor

If Gold Sells Off, Whither Silver? - Brad's Desktop - Hard Assets Investor



Just before the weekend, we puzzled over the prospects of an intermediate top in gold prices (see "A Holiday Gold Sale?") due to the seeming formation of a head-and-shoulders pattern.

Naturally, all this cogitation leads silver traders and investors to wonder what would happen to white metal prices if gold breaks down. Silver, after all, is gold's fellow traveler, though the two metals don't move in lock step with one another.

The metal's different drumbeats became distinctly audible over the past couple of months as the gold/silver ratio plummeted (see "Gold/Silver Ratio's Objective Reached"). Silver gained ground as gold's price multiple tumbled from 66x to 50x.

Silver not only got ahead of gold this fall, it also got ahead of itself. Silver's current price—basis the London fix—is now 36 percent above its 200-day moving average. Silver, compared to gold, seems much more overextended, as the yellow metal is just 11 percent above its 10-month average price.

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