The Gold/Silver Canary In The Coalmine

Tyler Durden's picture

In general when equity prices are rising and credit spreads are tightening, the ratio of gold-to-silver prices falls as 'fear' ebbs away and confidence in a real economy returns as exemplified by the rise of risk assets. Twice before we have seen the anti-correlation of stocks and gold/silver flip to a highly correlated regime, and as Bloomberg's Chart of the Day notes, each time it suggested "stocks were due to snap". It seems a concerted push above and a 50x ratio (for gold-to-silver) tends to exhibit notably risk-off behavior. Currently, the S&P 500 and Gold-to-Silver ratio have been highly correlated since this last rally began in stocks and as HSBC's Charles Morris notes, this suggests a 'snap' in risk assets within six months.



Charts: Bloomberg

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Irene's picture

Snap?  I want "Snap! Crackle! and POP!"

SRSrocco's picture

silver always underpeforms gold in a downtrend.  This downtrend started in Nov 2012 when the BIG DISCONNECT took place as the FED & Central Banks pushed up stock prices and manipulated gold and silver lower.  I explain this in my post:

Controlling the Beginning Stages of Hyperinflation by Manipulating the Precious Metals
mrgneiss's picture

Gee, precious metals are hitting multi-year lows, and the indices are at record peaks, does it take a genius to figure where to put your money?  But then again, MSM propaganda has done a good mind f**k on joe six-pack.

Policy makers almost always choose inflation over deflation, and the longer it plays out and the greater the underlying asset base, the more likely inflation will lead to hyperinflation.

There are no drivers of global growth when 3 out the 4 top economies have demographics working against them, ZIRP is no longer working as it did with every other recession, and printing money has decreasing marginal utility.

Precious metals have never gone to zero, whereas most forms of paper assets have and will again.



rocker's picture

That chart is excellent. Tells the whole story. Super Post for Zero Hedge Readers.

thepigman's picture

I"ll give you conspiracy buffs a simple trick and bet you don't use it. The  gold weakness is directly related to the JGB selloff which has occurred twice within the last two months. Gold goes back up when JBG yields come down again which will be anytime now. All the other metals and mining shares  have nothing to do with this..

Jack Napier's picture

Silver was hit harder than gold this last time, so that's another metal. This just goes to show that metals are in fact money, since it is money that they are correlating with. You're right that I won't use this trick. The real trick was convincing people that paper has value. I'll keep accumulating metal for now.

Arrowflinger's picture


I have been in metals since 2003. It has been great insurance, BUT.......the ability of the Central Banks to use unlimited fiat to control the implosion or delay it indefinitely seems without end.

Remember - in the long run we are all dead.

markettime's picture

George Soros seems to think metals are going higher pretty soon based on the amount of calls he bought on GDXJ. 

mattdubz86's picture

that SEC from is old, watch for updated one, he could have bought calls to cover his short. or he could have sold them all.

Arrowflinger's picture

Yes, I once held Silver Standard Resources at a time when Soros supposedly own it and found out later he had sold. (My decision had nothing to do with whether Soros owned or not.) I once owned Pan American Silver when Buffett supposedly owned it, but found he had sold also. I have not been in paper silver or gold, including the miners for a very long time (exited with 4x return). Holding physical takes endurance. Alas, the performance of the markets under the Fed's Ponzi is leaving folks who listened to me holding large losses. In this way the Manipulators are taking their toll on us all. The Math says they lose and that we win, but when that happens looks to be even a decade off. By that time the frugal will be quite literally buried.

forwardho's picture

Arrow, your advice will be vindicated, (I know how you feel) dont't forget the dynamics that led you to your veiw are still there. They have been temporarlly blurred by brute force. You planned for the long run.

Keep the faith.

Arrowflinger's picture

Oh, I have many arrows left and many of them absolutely THRIVE on the world as now exists.

 "Roast me! Hang me! Do whatever you please," said Brer Rabbit. "Only please, Brer Fox, please don't throw me into the briar patch."

I have a briar-worn coat. The initial forays into the thorn beds of the financial terrorists have been satisfying indeed. It was like a bolt out of the blue, leaving not one, but two, oligarchs sort of,

When the world changes as in these days, the observant, the studious, the risk takers, and those who advance, instead of retreat, will carry the dead out on their own shields. Steal my money, eh? There is a PRICE for that you poor bastards!

In a Dog eat Dog world, it doesn't pay be wear milk bone underwear. Most here don't.

They will never know what hit them when the tide turns. Here's to catching the wave that they drown in.


yabyum's picture

Arrow, I own a few silver keeps me humble. Very humble.

Arrowflinger's picture

If you own CDE, you have my sympathies.

caconhma's picture

"George Soros seems to think"

Sioros does not think. He is an agent of the Banking Mafia Oligarchy, consequently, he knows what is going on.

SRSrocco's picture

If someone bought gold in 2008, they would have outperformed the DOW by 50%.  If you bought Silver you are EVEN compared to the DOW.  Even though silver has not performed as well as gold, its current value has been pushed into the toilet, while the DOW JONES is sitting at the edge of a CLIFF.

Arrowflinger's picture

Dow Jones is hardly at the edge of a cliff when you have Kooksian economics in play.

Don't get me wrong. I bought a lot of silver at $5.25 an ounce, but listening to KWN since its inception frankly has me burned out on breathless anticipation.

A fellow would croak being breathless this long.

I have been frugal beyond everyone I know.

I am getting murdered by the Kooksians and they have infinite electrons in their computers.



SRSrocco's picture

Have you noticed... since NOV 2012, Gold & Silver have been clobbered by the Monetarists... but the price of OIL is almost at the same LEVEL:

NOV 2012, DOW/WTIC OIL ratio = 157/1

TODAY, DOW/WTIC OIL ratio = 158/1

NOV 2012, DOW/GOLD ratio = 7.5/1

TODAY, DOW/GOLD ratio = 11/1

NOV 2012. DOW/SILVER ratio = 375/1

TODAY, DOW/SILVER ratio = 671/1

Looks like the FED & CENTRAL BANKS have targeting more the metals than the energy that makes the world's economies move.

forwardho's picture

Look at the world today.

If your eyes have been opened you can see this whole "world" is today held together with fear and denial.

Does anyone think this rolling shitstorm is getting or will get better?

Enbrace the uncertainty of today, Its what we have been given.

Our future is certain chaos.

outamyeffinway's picture

Even the London Gold pool ended....

A Nanny Moose's picture

How about SNAP, WIC, and EBT? They're free you know.

semperfi's picture

"this suggests a 'snap' in risk assets within six months."

says the "old normal" thinker

becky quick and her beautiful mouth's picture

let it happen. please.

TeamDepends's picture

Gold/Silver ratio will be 1:1 one glorious day...

Gmacks's picture

Haha yeah because that's ever happened. I could see 1:8 but 1:1 you're high!

tmosley's picture

That has happened.  Silver was 2-4 times the price of gold for thousands of years in Egypt.

Now, as then, above ground silver is rarer than gold, a condition that has not existed even once since that time.  The only way to stop it is to raise the dollar price to the point that industrial use slouches or stops completely.  Even if it disappeared, it would take 5-10 years for the silver stockpile to build high enough for there to be a 1:1 ratio above ground, IIRC, assuming you could even mine the stuff anymore with a complete shutdown of all silver using industry.

Shell Game's picture

Conversely, if the industrial use of silver slouches (or collapses dramatically) so will price.  Gold is held, silver is spent.  The velocity of silver will also keep a lid on price. There is a reason silver has always made better coinage and gold has always laid still absorbing monetary mayhem.  I see 100:1 to 200:1 as a more likely scenario.

Bastiat's picture


"if the industrial use of silver slouches (or collapses dramatically) so will price."

Not necessarily.  80% of the silver produced is a by-product of other mining, mostly copper.  What happens to the SUPPLY of silver if industrial demand drops?  The relative industrial demand for silver versus other metals seems to increase as more and more uses are found.  Silver is also unique and there is no substitute in many applications. Also, it tends to be a minor (but essential) input in many products so that the industrial demand is not particularly sensitive to price.

Shell Game's picture

'What happens to the SUPPLY of silver if industrial demand drops?'


SUPPLY increases.  Know what happens to PRICE when SUPPLY increases?  For fucks sake Bastiat, I thought you knew economics...  I guess you're one of those who believes in 'the recovery'?  Demand will evaporate when the global crash comes.  Silver will be currency. Gold will be the store of value extraordinaire.  Believe what you want, that's how it will go.

Bastiat's picture

Sorry for not being clear. What I meant to say was: "What happens to the SUPPLY of silver in general industrial demand drops, ie. demand for other industrial inputs, especially copper?  What happens, since most silver is produced as a bi-product of those other metals, especially copper, is that the supply of silver drops with the drop in copper (or other) demand (and production).  As demand drops, prices drop and production drops.

In a nutshell the point was that silver has a built in supply limiter to offset downward pressure on price coming from reducted industrial demand for silver.

Take a few breaths.

Levadiakos's picture

You're a bagholder without a ball sack. 

TeamDepends's picture

And you suffer from normalcy bias.  Guess we'll have to wait and see who is kookier. 

Arrowflinger's picture

The disciples of John Menherd Kooks rule the earth.

All hail the dominance of Kooksian economists.

" Debt is Wealth .....Debt is Wealth"

Got it?


Shell Game's picture

Oh, yer not Kooks, silver-bugs are more like the 2nd string, and we starters are rooting for you anyway.   ;)

Canadian Dirtlump's picture

I pray you're right. I'll factually shit myself if it gets to 25:1!

edifice's picture

I'll be selling when it hits 20:1.  That's when the "We Buy Gold" stores will turn into "We Sell Gold".

Canadian Dirtlump's picture

I will as well, after voiding my bowels into my gonch.

ParkAveFlasher's picture

Tell us, what is a "gonch", preciouses?

Likstane's picture

I believe it is that pocket of space underneath your balls extending to the rear of most elastic legged undergarments.    Charlie Munger says, "When short on thread, place your gold in your gonch."

unwashedmass's picture


and that is why ben and the boys are working so hard now to contain the gold/silver implosion. ain't workin' no more....

nope.....they ain't got no metal left....and the damn peasants keep expectin' delivery.....

seems like no one trusts bennie, jamie or blythe...

wonder why? 

ParkAveFlasher's picture

TBTF can't lobby physics to change its laws.

LawsofPhysics's picture

Precisely why it isn't the "circuses" that matter, it's the SNAP payouts and the ability to deliver the fucking bread that count.

ParkAveFlasher's picture

The American Catch-22 is defined by the fact that the dollar's reserve status precludes inflationary tactics to restart the industrial engine however people must be fed and currency not even backed by productive value-adding (as in an industrially-backed fiat) must be used to grease the food supply chain, as you say.  Thus supplemental currencies are issued in the form of EBT, credit, vouchers, "benefits", etc.  Society is two, maybe three hungry days from utter chaos. 

forwardho's picture

It has and will always be about the bread.

Tipping point for any society is hunger.


Rustysilver's picture

So, you must have some distant relatives in France.

That's how french revolution started: the price of bread.