While the precious metals are totally off the radar by the majority of investors, silver is setting up for one major bull market. Yes, it’s hard to believe as the gold and silver prices have been trending lower while the broader markets grind up higher, but if we look at the fundamental and technical indicators, the stock market and precious metals are now at extreme opposites.
The situation in the silver market is so much more favorable today than when it was trading at $20 at the peak in 2007. I will go one step further and say that the current silver indicators are even better than when the silver price fell to $9 towards the end of 2008.
If we look at the Dow Jones-Silver Ratio, it is at a much higher level today than what it was in 2007 or 2008:
When the Dow Jones Index reached a high of 14,000 in July 2007, silver was trading at $12.75 an ounce. Thus, we had a 1,100-1 Dow Jones-Silver Ratio. An investor could purchase 1,100 oz of silver for the Dow Jones that month. However, as the price of silver shot up over $20 in 2008, the Dow Jones-Silver Ratio fell to a low of 600-1. Once the markets started to sell off and as the silver price dropped to $9 in October 2008, the Dow Jones-Silver Ratio went back up to 1,100-1.
Now, if you look at the where the Dow Jones-Silver Ratio is today, it’s at a high of 1,823-1. Thus, the Dow Jones-Silver Ratio is 65% higher than it was when silver was trading at $9 in October 2008. I don’t believe precious metals investors realize just how extreme this indicator has become.
I also wanted to update the long-term Dow Jones and Silver charts. I have spent more time understanding technical analysis, and I can tell you that it does impact the markets when retail and professional investors trade based on technical indicators. Of course, it doesn’t change the fundamental reason to own precious metals due to the ongoing disintegration of the financial system via massive money printing and debt.
