"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, December 28, 2011

Silver unable to sustain price rallies

Silver has become the victim of the deflationary mindset trade with RISK AVERSION leading to a significant outflow of speculative money from the grey metal. I have said repeatedly that Silver will not go anywhere as long as INFLATIONARY FEARS are NOT foremost in traders' minds.

Note the following Gold/Silver ratio chart which details this exact thing. This ratio began moving in favor of Silver only after the Federal Reserve first announced and then began its Quantitative Easing programs back in late 2008. You can see the line beginning a steady decline as Silver appreciated at a faster rate than Gold during rallies as well as holding its losses to a minimum compared to the Yellow Metal during any setbacks in prices for both metals.

Not until the Fed confirmed the ending of the QE2 program and traders began worrying about a slowdown in the amount of liquidity being supplied to the markets did this ratio begin to reverse and move in favor of gold. Another way of saying this is that during any sort of DEFLATIONARY mindset, gold will hold its value much better than silver, which is still being viewed as a risk asset instead of as a monetary metal by the bigger players.

As the line of the ratio now advances, one can see that as long as traders are concerned over a slowdown in overall economic growth, whether from conditions in Europe or even from a slowdown in Chinese growth to a lesser degree, the trend is higher for this ratio.

Not until or unless the trading community becomes convinced that concerted CEntral Bank activity to supply further additional liquidity is imminent, will this ratio reverse and Silver begin to outperform gold to the upside once again.


  1. So, Dan, can we anticipate Silver outperforming Gold any time soon?

  2. So, Dan, if Silver (and Gold) is in deflationary mood - why then SPX is jumping up ?!

  3. "Not until or unless the trading community becomes convinced that concerted CEntral Bank activity to supply further additional liquidity is imminent"
    Dan I would add : and until they are convinced that this money will circulate into the real economy and counter deflationary forces due do deleveraging.
    Creating money is not enough if this money is just "stored" back by the banks at to their central banks.


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