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The gold to bonds ratio is in a rather clear downtrend. In 2014 it moved below its 61.8% Fibonacci retracement and the 2008 lows and this breakdown was verified in early 2015 and several times in 2016. It seems that the ratio can now resume its downtrend.

The 2015 level could theoretically stop the decline (in general, previous bottoms create support levels), however, this would be the first time that something like that has happen since the 2011 top. In other words, in the case of this ratio, this technique doesn’t seem to work and it thus appears likely that something else will need to provide the final support.

In the case of the 2011 top and the thing that preceded it, it was the less steep of the rising resistance lines, so – in analogy – perhaps it will be the less steep of the declining support lines that will stop the decline this time.

In both cases, we considered the long-term trend channels and the lines based on the previous extremes. In case of the 2011 top, the less steep line was approximately the upper border of the trend channel and in this case it seems that the line is based on the previous bottoms (note that it’s based on 5 bottoms, so it had already worked 3 times). Back in 2011, the ratio topped a bit below the line, so it wouldn’t be surprising to see the ratio bottom a bit above the support line, and that’s exactly what the target area represents – the price-time combinations above the support line.

The additional price target is provided by the 2006 bottom, however, please note that the previous bottoms were not particularly useful as precise (!) support levels either – none of the bottoms that ended the sharp 2013 slide formed at the 2008 bottom despite its proximity.

Consequently, we continue to view the declining support line and the red target area as more reliable. What are the implications? Exactly as the implications of the targets being reached in the case of the gold to gold stocks ratio and in case of the gold to silver ratio.

Namely, when the ratio approaches its target area, all other signals will become more important. In other words, the mentioned ratios serve as tools in the investors’ arsenal that can help to determine whether or not the final bottom is in or at hand. None of them is a crystal ball, but they are all things that one needs to keep in mind when investing capital in this promising sector. We’ll discuss other important issues regarding the final bottom in the precious metals market in the following parts of the Preparing for THE Bottom series.

Summing up, the gold to gold stocks ratio and the gold to bonds ratio can provide us with additional important confirmations that the final bottom in the precious metals is indeed in and while it seems that the bottom is still ahead of us, it doesn’t mean that it’s a good idea to delay preparing yourself to take advantage of this epic buying opportunity (after all, in our view, the biggest gains in the following years are likely to be made in the case of the long-term investment capital).