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Silver's Rise May be Bullish for Stocks

 October 03, 2012 02:20 PM

(By Michael Tarsala) The rising price of silver is giving a strong, healthy signal for U.S. stocks.


Source: Stockcharts.com

Silver prices are up strongly since mid-August. As you can see from this chart, silver in recent days saw the "golden cross" -- the 50-day moving average rising above its 200-day average. Technical analysts see the golden cross as an important indicator for gauging longer-term trends.

[Related -Buy Gold While You Still Can!]

It's not so what silver is doing on its own that's providing a stock signal, though: It's how it continues to move relative to gold.

The silver/gold ratio has a long history of moving more or less in line with the S&P 500. As a result, movements of the silver/gold ratio chart can sometimes be telling about stock direction.

Silver tends to rise faster than gold when market participants are optimistic about the economy. The reason is that silver has many industrial and commercial uses. Gold only has a few; it tends to take on its own currency-like status and has a role as an inflation hedge.

[Related -To See a Bear Market, Look to Gold Not Stocks]

As a result, a rising silver/gold ratio mirrors stock price optimism.

Source: Stockcharts.com

Just like silver,, the silver/gold ratio is close to seeing a "golden cross" of its own. It hasn't happened quite yet, but it could soon follow the price pattern for spot gold.

So watch for the silver-gold "golden cross" as another potentially encouraging sign that the stock market's up trend remains healthy.

Covestor Ltd. is a registered investment advisor. Covestor licenses investment strategies from its Model Managers to establish investment models. The commentary here is provided as general and impersonal information and should not be construed as recommendations or advice. Information from Model Managers and third-party sources deemed to be reliable but not guaranteed. Past performance is no guarantee of future results. Transaction histories for Covestor models available upon request. Additional important disclosures available at http://site.covestor.com/help/disclosures. For information about Covestor and its services, go to http://covestor.com or contact Covestor Client Services at (866) 825-3005, x703.

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