How to Filter the Speculative Noise Out of Gold Prices


Last week, we called for a rising gold to silver ratio. On last Wednesday, this ratio hit nearly 80 before backing down a bit by the end of the week. It did not happen with a rising price of gold, rather it was a function of a falling silver price. On Wednesday, the silver price was down $1.22, or -8%. By the end of the week, it had rebounded along with the gold price.

We said we thought silver was overpriced at $15.31. Read on, for our take on $14.53. But first, let’s discuss the concept of the fundamental price.

We have been discussing fundamental prices of gold and silver, and contrasting them every week with the market price. This is how we have known that the price of silver would fall since the inception of this Report a few years ago (and prior to that). This is why we thought that the gold to silver ratio would likely hit 80 or more (as it did on August 26). It should be noted that most others were expecting silver to outperform gold.

The fundamental price is not a timing mechanism, but a valuation metric. It tells us which way supply and demand forces are applying pressure to the price. Sometimes, it is telling us the price is far from its fundamental levels. We recall the summer of 2013 when there was a ferocious rally in the price of silver from $19 to $25. That rally flew in the face of the fundamental valuation of the metal. We knew that the $25 level would not hold, despite the charts and the excited cheering from the silver bugs.

The price of silver has not been up to that level since.

This is a bad news, good news scenario.
Read more at AffluentInvestor

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