Silver Taking The Lead

London (Apr 22)  Silver bulls finally have something to cheer about. After months of lagging its richer cousin, silver is making a move on gold. This is good news for both metals should it continue. Silver nearly always leads in bull markets and lags in bear markets. Its months-long slide against gold has led many traders to question – rightly, in our opinion – the staying power of the recent mini rally in gold. The past two days have gone a long way towards reducing some of that apprehension.

The gold / silver ratio spread measures how many ounces of silver it takes to buy one ounce of gold. Gold is roughly 16 times rarer than silver. Back when both metals were considered money, silver was roughly 16 to 20 times cheaper than its richer cousin. 14 days ago, silver was 82 times cheaper than gold. As the price action illustrated in the chart below suggests, this trend of silver getting cheaper versus gold has broken down and done so in a big way.

Wednesday’s close below old lows at 79.50 was the first time this spread has managed a close below a previous low in five months. Yesterday’s follow-through to the downside confirms the end of the bearish bias in silver. While it is not the time for silver bulls to pop the champagne corks yet, this kind of price action in the gold / silver ratio spread is definitely one of the most encouraging things we’ve seen in quite some time. However, the poor man’s gold needs to do more.

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