Silver Underperforming Gold: Aberration or Expected Event?

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 |  Includes: DBP, DBS, DGL, GLD, IAU
by: The Silver Analyst

As of last Friday, gold closed at $783.50 and silver at $14.17. Gold is now more than 9% above its last major high of $717.10 of the 11th May 2006 but silver was still 4% below its closing high of $14.78 of the same day in 2006. That is a 13% differential so what gives with the theory about silver outperforming gold? The chart below shows why this is to be expected and why you should regard it as a last opportunity to get on the silver train before is bullets out of the station. In fact, if silver makes no new high, there can be no gold bull market!

click to enlarge

We have had two highs in the silver bull market so far – expect one more. When silver topped on the 6th April 2004 at $8.25 it did not surpass this on a closing basis until the 29th November 2005 with a price of $8.27. Gold made a high of $455 on the 3rd December 2004 and did not surpass this again until the 16th September 2005 at $459. So you see that silver was over two months behind gold in setting new highs. But once it set that high it was off and running and eventually outperformed gold by 35% for that particular bull run from August 2005 to May 2006!

Now we see that gold has again surpassed its old high. This time it went above its high of May 2006 ($717.10) on the 19th September 2007 with a close of $720.70. It is now over a month later and like September and November 2005 we await silver to take out its old high and confirm the precious metals bull market has resumed.

Remember, gold outperforms silver in the early stages of a bull run but you can depend on silver to outperform gold when the bull runs its course!