(From the Bob Hoye article dated August 4, 2011 - Note today's break and close above 45 on the Gold/Silver ratio)

Another indication of developing financial trouble is today's turn up in the gold/silver ratio. It is dramatic, but from the low close of 39.7 on July 18 the uptrend is brief.

It has been as high as 42.6 today and rising through 45 would set the trend.

This would confirm the pending arrival of a severe liquidity crisis.

The ratio has been a reliable indicator. Our July 24, 2008 edition concluded: "Rising through 54 would set the [ratio's] uptrend and this would provide additional confirmation of developing disorder."

It broke above 54 on August 6, 2008 and as the saying goes "The rest was history."

Gold Sector

The main conditioner for the silver market has been the blow-off in the silver/gold ratio in April. Silver usually outperforms gold during a bull market and the RSI provides a good indicator of the top.

This reached a little over 90 in April which was our "sell" on the sector.

In the third week of April we used the term "violent decline in silver" three times.

Ross has been accurate on the bottom and subsequent rallies, which were likely to run into August. It made it to this morning and the sector is now vulnerable. That includes gold, silver and their equities.

Silver's decline in price and relative to gold can be violent.

At times like this it is appropriate to review the characteristics of silver. The main ones are lustre, ductility and malleability.

The main characteristic of silver bugs has been gullibility--particularly when relying upon supply-demand research.

Silver cannot lose its characteristics, but silver bugs, as in 2008, could lose their lustre.