Long silver, short gold and…

…the DOW bottom. If markets could not have got more complex for GOLD BULLS, our intermarket cycles desk has initiated a LONG SILVER, SHORT GOLD signal. Though the signal was cooking for sometime since we gave our SILVER TURNS UP update (WAVES.GOLD.311008), we were waiting for more confirmation regarding a turn up on the silver performance cycle against Gold.
An Intermarket CYCLE signal is a lot different than a normal price or momentum signal. Here we are looking at performance time cycles. Silver and Gold have a performance cyclicality against each other. After a fixed period one asset from the pair outperforms the other. Silver shows a 5.5 average cyclicality against Gold. The last time Silver hit a performance low against Gold was in Mar 2003. Though the illustrated chart is of a larger time frame, the DAILY and MINOR charts have already given a turn signal. Month over Month, high to low, Gold fell 15% and 6% in Nov and now in Dec respectively. While Silver fell 18% and 7% for the same period. The relative trend should change in favor of Silver. The white metal should rise more than Gold or fall less then the yellow metal.
It was on 13 Nov 2006, we published ‘The Gold Silver’ ratio when we said “The price relationship between Gold and Silver is not fixed? It varies substantially. And it has predictive value too…. “ Then in 21 April 2008 we said “The Gold-Silver ratio, we highlighted last time (The Metals Maze) gave no signal of a collapse. Rather the sentiment indicator has moved unfazed despite millions going homeless and more than 100,000 losing their financial jobs (more serious than the tech bust). This means two things, one that the Gold-Silver ratio has stopped working after predicting the 1980s and 2000s crash or second the crisis has not yet started. “
What happened after MAY 2008 was much worse than what crisis we saw till then. The DOW collapsed 42% since MAY 2008. This collapse was accompanied by the rise in the Gold –Silver ratio (Fall in the Silver – Gold). Though we were inappropriately connecting fall in Gold prices as cause for delayed recession, the intermarket cycle between Gold and Silver was working perfectly. The ratio line started moving up perfectly before the big crash. Now on most performance measures the relationship between the two metals is stretched and at an extreme. And if our other inter market pairs like S&P 500 vs. Dow and BSE 500 vs. Sensex have some merit, the Long Silver – Short Gold should be accompanied by a rise in the equity market worldwide including the DOW. We have carried the DOW along with the silver vs. gold cycle oscillator in the report. The oscillator low timed most of the DOW primary and intermediate lows since 1980 (last four occasions). We are betting on a low again. Meanwhile Gold and Silver continue to move as anticipated. Though both the metals seem to be in an ongoing corrective formation, we are still expecting SILVER to continue to hold above previous lows.