Skip to main content

Gold Silver ratio helps to predict the price pattern

GOLD-silver ratio, which denotes how many ounces of silver are needed at a given point of time to buy an ounce of gold, is a handy tool to understand the direction in which the two volatile metals may move in the near future.

The ratio can help an investor to switch his holdings to gold or silver as the ratio moves up and down, thus, accumulating more quantity of both the metals.

The ratio shows how many times more expensive gold is to silver. Typically, the ratio moves in a pattern, and in normal circumstances, it helps predict which direction the prices shall move in the near future.

Between 1950s and 1980s, the gold-silver ratio has largely moved between 20 and 50. In 1980, however, it touched 100, when global economies were trying to contain inflation and were selling their gold reserves. In 1990-2000, the ratio largely remained stable.

In the past decade, the ratio has been moving gradually, but consistently lower.
The median point has remained at around 54. At the start of the year, the ratio was at 52 levels, down to a low of 32 and is at present back at 52 levels.
 
The ratio has moved significantly higher during times of economic uncertainties as gold is one of the leading safe-haven assets.
Gold is mainly an invest ment tool, while silver serves industrial purposes as well.
During stable times, it is better to invest in silver and shift monies to gold during uncertainties.
The ratio had peaked in recent times during the financial crisis of 2008-09 and the dotcom bust in early 2000. During the dotcom bust, the ratio had touched 80 and in late 2008, it shot up to 84.
How to use the ratio: At the present ratio of 52, an uninitiated investor can start putting his money in gold till it reaches 70. "One need not invest the entire amount in one go, but make a staggering investment as the ratio moves up," said Bitupan Ma jumdar, analyst, commodities and assets, JRG Wealth Management.

Once it reaches 70 and if there is an upward trend, it is time to move the gold holdings partly into silver. Almost 60 per cent of the holdings can thus be moved into silver in phases if the ratio touches 80.

The ratio moving beyond 85 levels has happened only in 1980 and this is not likely in normal situations. From 80, the ratio has come down and silver prices have started rallying.

At 80 levels, the investor should wait for the silver rally to play out and the ratio to once again drop down to levels between 50 and 55.
Between 50 and 35, he can once again accumulate gold as the ratio is only going to move up at around 35.

Along with the ratio, an investor also has to follow the macro economic factors to understand the duration of the cyclical movement in gold and silver.

The ratio can stay at higher levels for a longer period if the financial crises are triggering safe-haven buying in gold. On the other hand, if the financial markets are stable and the industrial output of key economies remain robust, the ratio can remain at lower levels for a longer time.
 

Popular posts from this blog

Mutual Fund Review: Religare Tax Plan

Tax Plan is one of the better performing schemes from Religare Asset Management. Existing investors can redeem their investment after three years. But given the scheme's performance, they can continue to stay invested   Given the mandated lock-in period of three years, tax saving schemes give the fund manager the leeway to invest in ideas that may take time to nurture. Religare Tax Plan's investment ideas revolve around 'High Growth', which the fund manager has aimed to achieve by digging out promising stories/businesses in the mid-cap segment. Within the space, consumer staples has been the centre of attention for the last couple of years and can be seen as one of the key reasons for the scheme's outperformance as compared to the broader market. It has, however, tweaked its focus and reduced exposure in midcaps as they were commanding a high premium. The strategy seems to have worked as it returned a 22% gain last year. Religare Tax Plan has outperformed BSE 100...
Read more

Mutual Fund Review: L&T MIP

        This fund won't deliver chart-topping returns. However, over the long run it will not disappoint and end up beating the category average The fund has seen numerous changes at the helm. When Katare took over in October 2007, he made dramatic alterations to the portfolio. On the equity side, he increased the number of stocks to 11 (November) from 2 (September). On the debt side, he added Certificates of Deposit (CDs), while earlier Treasury Bills (T-Bills) and cash accounted for 88 per cent (September 2007) of the portfolio. In November 2007 he exited T-Bills for good. The results impressed. In the last quarter of 2007, it delivered 12.83 per cent (category average: 6.12%). In 2008, the first quarter performance was nothing short of impressive, a return of 9.93 per cent (category average: -3.97%). While other players increased their portfolio maturity, Katare maintained a low maturity profile. While the average maturity of the category was 2.81 years that quarter, th...
Read more

PF e-Passbook

  Provident Fund e-Passbook   The Employees Provident Fund Organisation now runs an e-passbook service that enables members to log in and access their provident fund accounts . This facility enables tracking of the money and ensuring that the employer's contribution has been deposited into the account. This facility is available to those whose accounts are with the central provident fund commissioner for maintenance and can be availed at members.epfoservices.in . Registration A member can register at the portal easily by using PAN , Aadhar or passport number as the log in and the mobile numbers as the PIN . This combination enables easy retrieval of information. Accounts After logging in, the member has to choose the state where the employer is located, and enter the code number of the employer, account number and name. These details can be obtained from any existing PF document . PIN To download the passbook, the member will request...
Read more

Reconfigure investments to reap benefits in DTC

    Investing for tax benefits under the new Direct Taxes Code ( DTC ) will be different in several ways from what taxpayers are familiar with right now. This will require some reconfiguration in the nature of investments for the investor and they need to be ready to tackle the changes that will come about once the new DTC is implemented from financial year 2012-13.One area of interest for most taxpayers is the manner in which they can extract the maximum tax benefit. Here is a look at the situation and also how it changes from the existing position. Basic deduction: At present, there is a deduction of Rs 1 lakh that is available for an individual when they make investments under specified areas such as provident fund, public provident fund, national savings certificates, equity linked savings scheme and insurance premium, among others. This benefit is available under Section 80C of the Income Tax Act. This has been replaced by a new Section 68 under the DTC where there is a deduct...
Read more

ICICI Prudential Balanced Fund

 ICICI Prudential Balanced Fund scheme seeks to generate long-term capital appreciation and current income by investing in a portfolio that is investing in equities and related securities as well as fixed income and money market securities. The approximate allocation to equity would be in the range of 60-80 per cent with a minimum of 51 per cent, and the approximate debt allocation is 40-49 per cent, with a minimum of 20 per cent. An impressive show in the last couple of years has propelled this fund from a three-star to a four-star rating. The fund has traditionally featured a high equity allocation, hovering at well over 70 per cent, which is higher than the allocations of the peers. But in the last one year, the allocation has been moderated from 78-79 per cent levels to 66-67 per cent of the portfolio. ICICI Prudential Balanced Fund appears to practise some degree of tactical allocation based on market valuations. Within equities, well over two-thirds of the allocation is parked i...
Read more
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now