Silver Battles Back Up

By Brad Zigler

Silver's now fighting for respect, as you can see from the accompanying gold/silver ratio chart. The ratio simply tells you how many ounces of silver can be purchased with one ounce of gold. A higher ratio indicates that gold's price is rising relative to silver while a falling ratio means silver's gaining strength. We examined recent action in the gold/silver ratio in "Panic Investors: Gold or Silver?".

From what we've seen over the past month, investors, sensing the gathering financial storm, clearly preferred gold over silver. The ratio, which treaded water at the 52-to-1 level for four months, shot up 10 points in mid-August, took a breath, then rocketed further into the 70s to post an interim peak (basis the London AM fix) on Sept. 17 near 73-to-1. 

Gold/Silver Ratio

 Most experienced traders would expect a reaction to such a parabolic move and, sure enough, silver battled back in the two ensuing days, pushing the ratio down to the 65-to-1 level. Monday morning's fix, however, taking into account U.S. market action on Friday, brought the ratio up to the 67-to-1 range.

COMEX silver futures, which settled on $12.70 an ounce on Thursday, gave up more than 22 cents on Friday. In contrast, the iShares Silver Trust (AMEX: SLV), a grantor trust holding silver bullion, gained 57 cents a share on Friday, jumping from $11.89 to $12.49 on less-than-average volume. The trust, which typically trades 8 million shares a day, saw more than 23 million of its shares change hands on Thursday.

All of this points to a rather weak commitment on the part of silver bulls.

Technically, December silver looks like it put in a short-term low when it closed above its 20-day moving average. Other technical signals, too, indicate that higher prices may be attainable, but silver's recent gains look more tenuous than gold's.