Source: SRSRocco Report, by Steve St. Angelo
The Great Precious Metals Market Disconnect that took place four years ago is now a ticking TIME BOMB. While the Fed and Central Banks have been relatively successful in propping up the broader stock, bond and real estate markets, time is not on their side. The more the highly inflated markets continue higher, the more breath-taking will be the inevitable collapse.
Now, I am not just pandering hype here, there is plenty of data to support the evidence that the precious metals suffered a serious disconnect from the broader markets in 2012 and continue to be held down like a coiled spring. One of my readers forwarded me this excellent chart which shows this perfectly:
The chart is a Silver-Gold ratio (RED LINE) compared to the S&P 500 Index (BLACK LINE). Take note, this is not a Gold-Silver ratio, but the opposite. As we can see, the Silver-Gold ratio line has paralleled the S&P 500 from 1997 to 2012… very closely. However, when the Fed announced QE3 at the end of 2012, something quite interesting took place. The Silver-Gold ratio continued lower towards its bottom level, but the S&P 500 Index surged upward to a new record high.
While many precious metals investors realize that this disconnect took place, this chart shows it with more precision. Furthermore, if we look on the right side of the chart we can see the percentage level of this disconnect is 65%. This is off definitely off the charts… literally and figuratively. Again, I appreciate my reader for forwarding this chart.
After looking at this chart, I did some additional research on the S&P 500 and the silver price. If we look at the S&P 500 divided by the silver price since 1981, we have the following chart:
The current S&P 500 Index-Silver ratio is 130/1. Basically, 130 ounces of silver would buy the S&P 500 today. When silver reached nearly $50 in 2011, the S&P 500-Silver ratio was 28/1. However, if we go back to 1981 or in 1983, we can see the S&P 500-Silver ratio was 10/1.
If we applied the same 1981 S&P 500-Silver ratio today, the price of silver would be $230. That being said, the value of the S&P 500 is severally inflated. So, it is difficult to determine a realistic silver price based on a highly inflated stock index.
Regardless, the YELLOW ARROW in the chart shows that the S&P500-Silver ratio should have continued lower, not higher towards the 130/1 ratio it is currently. Unfortunately, the precious metals were not allowed to be apart of this GREAT INFLATION because there just isn’t enough physical metal to go around.. if the public started buying hand over fist.