Each time the gold/silver ratio moved more than 2 standard deviations away from its 200-week moving average since 1971, it resulted in a mean-reversion move. This ratio is currently at its most extended levels since the 2008 crisis. $gold $silver $GLD $SLV $GDX $GDXJ $SLV pic.twitter.com/3Ess7oHktz
— Aazan Habib, CFA, CMT (@aazanhabibCMT) April 5, 2020
Today’s Chart of the Day was shared on Twitter by Aazan Habib (@aazanhabibCMT). It’s a long-term chart of the Gold/Silver ratio, going back nearly five decades. This ratio helps us gauge the overall risk appetite for Precious Metals as an asset class. Aazan uses Bolinger Bands to highlight the fact that this ratio is extremely stretched right now, and likely due for some mean-reversion lower. He adds that “each time the Gold/Silver ratio has moved more than two standard deviations away from its 200-week moving average since 1971, it resulted in a mean-reversion move.” If history is any guide, we’ll likely see Silver outperform Gold over the next few weeks/months, which would be bullish for Precious Metals as an asset class.