As a result of silver's relative underperformance, the Gold:Silver ratio (GSR) spiked to just under 78x, the highest it's been since December 2008. This is worth noting because the GSR is reaching levels that are historically associated with major tops.
The chart above is a 15 year weekly chart that shows we have been in a well-defined upward channel since 2012. This means that gold has been steadily outperforming silver during that period of time. It doesn't mean gold has been rising faster than silver, it means that gold has fallen less quickly than silver.
The spike to 78x last week effectively hit the top of the channel which has acted as resistance for the past three years. The GSR immediately reversed on Monday with the sharp rally in precious metals, punctuated by silver's outperformance. Based on GSR's behavior since 2012, I believe that it will continue to trade within the bounds of the channel, slowly working its way towards the lower support line. Using previous trajectories as a guide, I've roughed out what I believe is the most likely path over the next few months. It looks like the GSR will hit 65x sometime in early 2015. This means that between silver and gold, silver will be the relative out-performer. Again, that could mean silver will rise faster than gold over this period, OR silver will just fall less.
If my prediction is correct that the GSR will re-test the lower boundary, then we need to pay close attention to how it reacts after that point. One of two things can happen. First, it could continue its pattern within the channel which would mean a reversal higher and therefore relative outperformance by gold until the GSR reaches the upper bound again. The second, and more intriguing option in my opinion, is that the GSR breaks down below the lower bound and establishes a new downtrend. Remember, this ratio has been above 78x for only two periods of time over the last 15 years - once in 2003 and again in 2008. After each period, the GSR moved into prolonged downtrends, each lasting several years, where silver was the preferred investment between the two commodities. I believe we are about to enter the next leg down at least in the short term and quite possibly for much longer.