Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
New Data Shows Shopify Was a Godsend for Mom and Pop During Coronavirus - 18th Jun 20
Low Inflation Makes Powell a Dove. How It Affects Gold? - 18th Jun 20
Stock Market Waterfall Selling in S&P 500 Is Over Now - 18th Jun 20
NASDAQ: Some Historical Insights into Tech Stocks Mania - 18th Jun 20
XLF Financial Sector Stocks ETF May Break Below Price Gap - 18th Jun 20
REOPEN THE SCHOOLS! Kids Going Crazy in Lockdown Britain, Sheffield UK - 18th Jun 20
Stock Market S&P 500 ADL Predictions - 17th Jun 20
Silver is Going to have a Sudden, Massive Move to $50 that will Suprise Everyone - 17th Jun 20
Gold Stocks Investment Strong - 17th Jun 20
Silver Tops Gold in May, Setting up a Summer Surge - 17th Jun 20
Google - Investing in Best Artificial Intelligence Stocks for 2020 and Beyond! - 17th Jun 20
AMD Ryzen XT Refresh Very BAD Value for Money - 20% Price Hike for 2% Boost, 3900xt, 3800xt, 3600xt - 17th Jun 20
8 Rules for Forex Market Beginners - 17th Jun 20
The AI Stocks Mega-trend - Moores Law is NOT Dead! - 16th Jun 20
Gold Stocks Correction and Upcoming Opportunity - 16th Jun 20
Stocks Bulls Beware: A Dark Cloud Is Forming Over Oil Markets - 16th Jun 20
AMD Ryzen Refresh Bad Value for Money - 3800xt 3900xt 3600xt Specs - 16th Jun 20
How to Clip a Budgie / Parakeet Parrot's Wings Flight Feathers: Easy Steps! - 16th Jun 20
XLF Financial Sector Stocks Under Pressure and What It Means - 15th Jun 20
For History Unfolding To Stay Informed, Watch Less TV - 15th Jun 20
Black Lives Matter Protests to Trigger US and UK 2nd Coronavirus Wave - 15th Jun 20
Staying Cautious & Staying Prepared With You Stocks Trading Account - 15th Jun 20
Silver: How to Gauge the Crowd's Mindset - 15th Jun 20
When to Sell Your AI Tech Stocks Investments - 14th Jun 20
Gold and Silver Precious Metals Sector Correction Starts as Risk On and Seasonal Factors Weigh - 14th Jun 20
What Happens When Cars Can “See”? - 14th Jun 20
Rolex Watches — a Store of Value - 14th Jun 20
US and UK Black Lives Matter Protests, Riots and Looting To Trigger 2nd Covid-19 Wave Peak? - 12th Jun 20
US Dollar Cycle Points To New All-time Highs For Gold - 12th Jun 20
Will US Labor Market Recovery Sink Gold? - 12th Jun 20
Stock Market Shift Away from Safety Begins - 12th Jun 20
Gold Silver Ratio - 11th Jun 20
When Profits and Politics Drive Science: The Hazards of Rushing a Coronavirus Vaccine at “Warp Speed” - 11th Jun 20
Gold Sad Truth - 11th Jun 20
Silver’s Apparent Recovery - 11th Jun 20
Unnatural Distortions and the Precious Metals - 11th Jun 20
Perceiving Coronavirus as a Disruptive Technology Accelerating Quantum AI Mega-trend - 11th Jun 20
A 2020 guide to Business Opp Affiliate Marketing - 11th Jun 20
What Huge US Jobs Number Means For Your Market Positions - 10th Jun 20
New Stocks Bull or Same Old One? - 10th Jun 20
Inflation ‘A mirror image of the early 1980s’ - 10th Jun 20
Trump's Final Gamble: From Chinagate to Hybrid Wars - 10th Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Gold-Silver Ratio And Correlation

Commodities / Gold & Silver 2020 Jun 03, 2020 - 06:56 PM GMT

By: Kelsey_Williams

Commodities

From Investopedia:

Correlation is a statistic that measures the degree to which two variables move in relation to each other. Correlation measures association, but doesn’t show if x causes y or vice versa, or if the association is caused by a third–perhaps unseen–factor.”

In order for correlation to exist, there must be fundamentals that directly connect the two items being compared.

For example, there is a possible correlation between localized, bad weather and crop failures. But how do you predict the timing and extent, or the effects, to a degree that can be profitable?


And there certainly is a correlation between the price of labor and materials vs. the finished cost of building a new home. But there is no correlation between the price of labor and materials vs. the number of new housing starts.

We can find patterns and rhythm that might appear to be correlation (or inverse correlation) by plotting the price differential of any two items but it still does not imply correlation.

So, are gold and silver correlated?

ARE GOLD AND SILVER CORRELATED?

Being literally specific according to the above (“correlation measures association…”) then, the question becomes “Is there association between gold and silver?”

The answer is yes, strictly speaking. But, only as it pertains to their use as money.

The association is blurred by the fact that silver’s primary role is industrial, and its role as money is secondary to its use in industry; whereas gold’s primary role is in its use as money, and its industrial use is secondary.

“The basic value of either gold or silver stems from its primary fundamental. This means that gold is valued for its role as real money and silver’s primary value stems from its use in industry. And the primary fundamental for each metal will always be the same, even though there can be changes in the relative relationship of primary and secondary uses.”(See Gold And Silver – Fundamentals Be Damned)

Below is a chart (source) of gold prices for the past one hundred years. The prices are adjusted for the effects of inflation…

As a result, we can see that gold’s value has increased considerably over the past one hundred years. Nearly all of that increase has come in the past fifty years.

Gold’s increase in price and value are inversely correlated to the decline in value of the US dollar over the same time frame.

This makes perfect sense because gold is real money and the original measure of value for all goods and services; whereas, the US dollar is a substitute for gold (i.e., real money).

There is an established association between gold and the US dollar. Gold’s higher price over time reflects the ongoing loss in value (purchasing power) of the US dollar. The more the US dollar loses value, the higher the price of gold will go.

Now let’s look at a similar chart (source) for silver prices, also adjusted for inflation…

Here we can see that silver has declined in value over the past one hundred years and is cheaper now than it was a century ago.

The inflation-adjusted price of silver and its real value has stayed below its price point of one hundred years ago for eighty-four out of the past one hundred years.

The two times which silver prices moved generally in tandem with gold came when gold was responding – and catching up – to ongoing and accumulated losses in purchasing power of the US dollar.

After briefly exhibiting extreme volatility on the upside, silver prices quickly dropped back to their historically evident trading range below $20 per ounce, inflation-adjusted.

Any association/correlation between silver and gold is limited in nature because each metal has a fundamental role which is considerably different from the other. Gold price history is indicative of its association and inverse correlation with the US dollar. Silver prices reflect the white metal’s primary use as an industrial commodity.

GOLD-SILVER RATIO FAVORS GOLD

Let’s look at one more chart. This one is the ratio of gold prices to silver prices, the gold-to-silver ratio…

In this chart we see more evidence of what we saw in both charts above. In both price and value terms, gold continues to increase relative to silver.

Referring to the same point of focus as in both charts above, the gold-to-silver ratio is nearly three times higher than it was one hundred years ago. It has continued to move higher, favoring gold, over the past fifty years.

As we said before, we can calculate a ratio of prices for any two different items; but, those ratios will not imply correlation UNLESS there is measurable association.

As far as gold and silver are concerned, any association is strictly limited. It is not that the ratio cannot move lower, in favor of silver. It can. And, it probably will at some point. But it will likely be very short-lived.

The ratio cannot and does not tell us when such a situation might occur. Ironically, after looking at these charts again, it might be more reasonable to entertain a prediction that IF  the ratio dropped to a significant degree in favor of silver, one might load up on gold and sell silver, with the expectation of quick resumption of the currently established clear trend of an ever higher ratio, favoring gold.

(also see Federal Reserve And Market Risk)

Kelsey Williams is the author of two books: INFLATION, WHAT IT IS, WHAT IT ISN’T, AND WHO’S RESPONSIBLE FOR IT and ALL HAIL THE FED!

By Kelsey Williams

http://www.kelseywilliamsgold.com

Kelsey Williams is a retired financial professional living in Southern Utah.  His website, Kelsey’s Gold Facts, contains self-authored articles written for the purpose of educating others about Gold within an historical context.

© 2020 Copyright Kelsey Williams - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.tssmoney.com - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules

两个人做人爱视频大全-两人做人爱费视频试看