Silver Now Outperforming Gold

As readers may know, silver has put in a sterling performance this week and has outperformed gold into the bargain. The prediction that silver will eventually outperform gold as the precious metal bull market reaches a new zenith point is being fulfilled before our very eyes.

In my last article, I pointed out that the net short commercials may well begin to feel the heat and begin their third capitulation of this 5 year old silver bull market. Indeed, if they haven’t began to cover at cents below $20 an ounce, the sense of urgency brought on by mounting financial losses must be as loud as a roaring silver bull bellowing right into their ear holes.

As said before, silver is a prime choice to leverage any rise in the price of gold. Historically this has proven true and there is no reason why that strategy will not produce extra profits again – so long as you exit near the top and not swallow the huge losses that can afflict those who buy too near the top without a proper exit stratagem.

Since the August lows, silver has gained over 70% while gold has put on 50%. Divide those two numbers and you get silver outperforming gold by 40%. Of course, very few people sunk all their money into silver at $11.15 on August 16th 2007 so this picture is not representative of silver investors. That is why I use a four year rolling leverage indicator called the SLI. It is currently somewhere north of 1.20 and rising. That 1.20 means that anyone who invested in silver four years ago would now be 20% better off than the one who put the same amount of money into gold. Studies indicate that when this number reaches 80%, the silver bull market makes a major top.

In fact, silver continues to be a better investment than even the HUI. The underperformance of precious metal mining stocks continues to frustrate but when we look at how silver has performed on a similar four year rolling basis against the HUI we get the chart below.

click to enlarge

The leverage that the HUI offers over silver is in black with the price of silver in green. When the black line is above 1.00 then the HUI is the best place to be but when it is below 1.00 then silver is your man.

Clearly since mid-2006, silver has had the upper hand on the HUI basket of stocks and without the risks that accompany such stocks. That is why The Silver Analyst prefers silver to gold as a majority holding in precious metals. As silver attacks $20 and beyond, we hope to see this leverage over gold increase until the final blow off which in our estimation cannot be too far away now.

Comments

[ballsschweaty]

I've been selling silver into this parabolic move. Only idiots chase charts going vertical.

[EE]

Are you in for a shock! Read Jason Hommel's silverstockreport.com and the sites listed.

[jt]

You start well, but then you say something like this:

"As silver attacks $20 and beyond, we hope to see this leverage over gold increase until the final blow off which in our estimation cannot be too far away now"

Why? If historical ratios between gold and silver are closer to 1:16, and there have been times when it has been 1:1, why are we ANYwhere close. Technicals mean nothing at this point b/c the prices of gold and silver have been suppressed HUGELY for the past decade at least, for gold, and longer than that for silver. Beachballs finally let go under water don't "consolidate"... 20' below the surface...they keep on going to freedom. I don't doubt there will be some profit-taking, as the first poster above, but silver is NOwhere close to its inflation-adjusted peak in 1980, even using the completely fraudulent CPI in use since the Clinton administration. jt

[silveranalyst]

Look at the charts for 2004 and 2006, run ups in silver cannot be sustained for anything but months! Don't hang onto the talismans of 1980, it is not written in the skies that silver MUST beat $50!

[silveranalyst]

Also remember the 16:1 ratio wa a government decree for centuries. Since WWII, 16:1 has only been touched twice.

[alpa]

Mervelous... Story

hahahhah ...until the final blow off which in our estimation cannot be too far away now

PURE JUNK final blow off at 20 $ ?? you mean 200$ ??

Why?

Because Silver is going up because EUROPEAN are buying net PHYSICAL SILVER for just the last SIX month..

And will not sell until the price rise TEN FOLD

Do you understand what it mean for those who buy paper silver...

[User 138049]

short term technicals for silver look really good but the problem is the swings are so big that the chance and cost of getting stopped out are both quite high.

[silveranalyst]

I am not saying a blow off at $20, I said "$20 and beyond". You can forget about $200, that is years away and requires an inflation crisis similar to 1980 (which will come don't worry!).

[EE]

I repeat the suggestion to read,,,, Theodore Butler, Jason Hommel and his listed sites. This time fundamentals will mean more than chart techs and you better read words more than lines. And to Silver Analyst, your study and chart of the commercial shorts was mis-leading as Butlers work is on the concentrated 8 & 4 huge shorts that have manipulated gold & silver for years to unreal low prices. Thanks to them my cost in hand is $14/oz silver bars , maples, & eagles. Start reading Butler from May '07.

[silveranalyst]

EE, I have read Butler extensively. No need to check out the top shorts. The net commercial short position which Butler USES as proof of a manipulation clearly declined months before the last spike in 2006. The top shorts may have tried to maintain their big short positions (proof?) but they were fighting against a tide of short covering.

[Silver Nerd]

After Bernankes acceptance today that inflation is a problem and could in certain circumstances reach 1970s proportions, Gold will surely reach a $1000 in quick time. When that happens it will be splashed all over TV and the press and Joe Public will rush in following the herd instinct. Gold and Silver will spike and that will be the time to rush for the exits, not before. I believe that Silver will have reached $30.00 or more by then. After that there is sure to be a massive pull back which will give long term Bulls another buying opportunity. All I.M.H.O. of course.

[Johnakajt]

All this is great!
The long and short of it is that silver is a great investment, short term and long term. And a great insurance policy anytime!
I love to see people aurguing over, just how high my monster box is going!! woohooo
JT