Mar

With silver making a run for historic highs some traders ask how to trade the gold silver ratio and if knowing how to trade the gold silver ratio will be profitable in today’s trading. While technical analysis of daily silver prices will typically guide traders in buying and selling this precious metal, the gold silver ratio is a means of understanding the fundamentals of silver. The gold silver ratio was set by US law to be 15 in the founding days of the country but the discovery of huge amounts of the metal in the mid 19th century greatly devalued silver. Over the last century the gold silver ratio has swung from as low as 15 to as high as 100. Geologists tell us that silver is about 15 times more abundant in the earth crust than gold. As such a gold silver ratio of 15 would seem to make sense. However, it is markets that determine the prices of gold and silver and not geologists.  When gold started its upward climb a decade ago silver lagged behind. Now silver is at historic highs. Does any of this have to do with how to trade the gold silver ratio?

Does knowing how to trade the gold silver ratio replace careful fundamental analysis of silver prices? Does knowing how to trade the gold silver ratio replace doing continual technical analysis of market sentiment? The answer is likely no on both counts. The gold silver ratio is a yard stick. It reminds us that there is a limit to high or how low either metal can go in relation to each other. How to trade the gold silver ratio is like knowing how to read crop and weather forecasts in order to get a general idea of whether corn, wheat, or soybean prices will be higher or lower this year. Without more than selected information the trader is setting himself up for failure. How to trade the gold silver ratio and do it successfully is to keep in mind what fundamental and technical factors are making the ratio vary and how those factors may, or may not, rectify themselves. Learning how to day trade silver will more profitably start with learning the fundamentals that drive silver prices and then the technical aspects of trading silver. Comparison to gold via the gold silver ratio is probably a good way to maintain an overall perspective on silver as well as gold prices. It may not be a good way to trade silver day by day.

How to trade the gold silver ratio is probably to use the ratio as a yardstick, a comparison, in order to have a clear idea of the limits of silver prices in the near term. This is a matter of support and resistance levels. However, a better means of determining support and resistance levels of silver is probably the use of technical analysis of silver current prices. It is always best to avoid trying to outguess the market with the use of one fundamental factor.  A wise trader will take all fundamentals and technical aspects of silver pricing into account.