What the Gold/Silver ratio is telling us about the (late?) bull market...
I've been playing around with different ratio charts and last night I noticed an inverse correlation between the S&P or Dow and the gold/silver ratio, specifically between the 1990s and around 2012:
Today I also looked up some historical charts on MacroTrends.net, lined them up visually, and did a similar analysis (gray background areas indicate recessions):
And here's the same chart again showing periods of trends with positive correlations (circled) vs. periods of trends with negative correlations (lines):
Anyway, I think those charts kind of sum up what has been on my mind. Basically, I'm trying to decide if this relationship means anything in particular, and does it have any value as far as an investment tool?
It seems like perhaps what's going on is that, in times of plenty (bull markets), gold falls out of favor and silver takes prominence since it is more related to thriving industry. Then the reverse happens in lean times -- gold takes prominence in bear markets as people look for safe havens (and also perhaps there is less industrial use of silver because of the bear market).
Not sure that bull markets = more silver demand, or bear markets = less, so I'm not sure that completely adds up. Also, silver probably wouldn't have been such an industrial metal back in the early 1900s when computers and electronics weren't around, so how do we explain the relationship then?
Also, another question these charts bring up is, what do the periods of positive correlation mean? Why do those anomalies happen, and what's the common denominator? What does the current positive correlation between the markets and the gold/silver ratio tell us?
Anyway, like I said, just trying to think this through and see if there's any value there.