Gold Silver Ratio Weekly

A VERY important technical crossover in the gold/silver ratio occurred in the last couple of weeks going into the new year.

The 13-week EMA crossed over the 34-week EMA, which is a sign that gold prices will either hold their value better than silver or move against silver foreseeably for the next couple of years.

The last such occurence meant a decline in the stock markets. But we could be seeing signs that the long dated treasuries, especially the 30-year bond will sell off. The Federal Reserve might act, buying bonds out of the markets in the absence of market participants bouying the price.

The ideal scenario for the small gold miners will be that long dated treasuries sell off, and the money go into short term treasuries as Libor becomes prohibitive. The incentive to buy short dated treasuries as Libor advances in the financial sector plus perhaps certain tax advantages makes this certain. An extremely low or negative nominal interest rate in the shortest dated treasuries is certain to fundamentally support the gold price.

The stock market, which is perhaps not inversely correlated with bonds as certain resource sector stocks are, might also continue to sell off along with bonds. Equities coming under pressure is an especial concern for gold mining equities, despite a rising gold price. This is yet anothe reason to be adamant about shareholder returns in dividens, rather than equity price appreciation.

The gold/silver ratio actually bottomed at the very peak of the stock market rally, if it was considered a strong indicator of the peak.

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