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Identifying trend changes of the Dow-to-Gold Ratio using the MACD Indicator
Gold-to-Silver Ratio: The Key Level of 80
July 22, 2020
I was inspired to do this short analysis after reading an article posted by Bill Holter and Jim Sinclair on the Jim Sinclair's Mineset website in September 2019.
Intrigued by their findings, I took the challenge and I recreated the charts using my collection of historical data.
Jim Sinclair and Bill Holter pointed out that there is a pattern observed during the bullish periods (when Gold-to-Silver Ratio is favorable to gold) and at the end of those bullish periods.
The chart below [Chart 1] is the long-term chart, showing evolution of the Gold-to-Silver Ratio from 1970 to 2020.
In their article, Mr Sinclair and Mr. Holter pointed out that there are three bullish periods, each followed by a strong reversal:
From 1979 to 1991
From 1999 to 2003
From 2007 to 2010
The fourth bullish period started in 2011 and still continues today.
Each of these periods had ups and downs, but there were support levels established. Once the support level was touched, the ratio bounced back and continued its positive evolution.
Further, their article pointed out that if the Gold-to-Silver Ratio crossed below the support level, the Ratio started to decline rapidly, initiating a bearish trend.
These moments were:
Assuming that a similar pattern will be valid for the current period (staring in 2011), the purpose of my analysis was to identify the Gold-to-Silver Ratio where the trend will change.
In order to find out, let us look at the next chart [Chart 2], showing the evolution since 2011.
We can easily identify two support moments:
November 2012, when the ratio was 52
February 2017, when the ratio was 68
With these two points, it is easy to calculate the Slope of the Support Line [Slope = 0.3137]. Further, it is easy to calculate the support levels for the current month and the months ahead.
July 2020= 80.86
Aug 2020= 81.17
Sept 2020= 81.49
Oct 2020= 81.80
Nov 2020= 82.12
Dec 2020= 84.43
If the same assumption is valid as for previous periods, and if the Gold-to-Sliver Ratio reaches one of these levels during the given month, we have two possible scenarios:
If the Ratio bounces back above the support line, we will witness a new wave of increasing values, or
If the Ratio breaks below the support, we can expect the Gold-to-Silver Ratio to decrease in an accelerated manner, making Silver the top performer of the markets.