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The Gold-silver Ratio Says 'it's Obvious Something Is Wrong'

Ratio analysis has its pros and cons, but when two assets that normally have a strong correlation suddenly break down, it's obvious something is wrong.

That's exactly what has happened with the gold-silver prices ratio and the CPI.

As uber fund manager Dan Tapiero shows in this video, these two assets have always had a strong correlation—except leading into the 2008/2009 crisis. As Dan says, "We all know what happened then."

Here's the chart showing the sudden and drastic separation.

Mauldin Economics

One might argue that the gold-silver ratio could go up, but the point is that the correlation is already at an extreme. If the two assets close the gap and return to normal, deflation could increase dramatically.

The process might already be underway
The German CPI numbers recently surprised to the downside, the Japan CPI is low, and the Chinese PPI has been negative four years.

If central bankers continue to implement negative rates to combat deflation, it could be devastating to the banking industry. Just look at the banks in Sweden; they've reported losses every quarter since negative rates began because they refuse to bring deposits below zero. Why? Because capital would fly out the door.

A further increase in negative rates would be very positive for gold, despite the fact that it's soared year to date. If US banks try to pass negative rates onto depositors, many would pull money out and buy gold. Gold earns zero interest—but that beats getting charged just to hold your money in the bank.

Watch the 5-minute interview below:


About the Author

Christi
I'm Christi (23) from Tellaro, Italy.
I'm learning German literature at a local college and I'm just about to graduate.

I have a part time job in a the office.



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