The ratio of Gold to silver is getting close to an all-time high. It nudged over 125 last week. Will this narrow? Well yes, at some point it will, but when is the great imponderable.
There is another angle to this though. I had assumed that the ratio would be narrowed by the dollar price of silver suddenly shooting up. It seems to me, over my first coffee this morning, that it is more likely to be because of the dollar price of Gold ($POG) falling. Why?
Because there is a bid on Gold and on not much else. Credit is still tight in the market and while the stocks are going up again that is a receding problem. When stocks fall again, and they will, then the problem of a dramatically falling bid on stocks will see Gold, which is close to a high and thus has a strong bid, sold off in order to gain liquidity – cash. They will sell and they will sell hard, because there is little else that they can sell.
The major players in the Gold market are concerned with not losing money which, in the game they play, is defined as dollars. In the financial world it is all about dollars. The gain or loss of dollars is how the success or failure of individuals, corporations and CEOs is judged.
In the next leg down of the stock market, the $POG is likely to go down hard. Along with that will go, again, the shares of the Gold miners.
Of course, it will be just a correction in an up-trending graph, but it will be a shock to many. There may even be an exacerbation of the situation by panic selling.
Time for another coffee and a new plan.