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How Are Precious Metal Spreads Moving in 2017?

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How Are Precious Metal Spreads Moving in 2017? PART 1 OF 6

Why the Gold-Silver Ratio Fell in 2016: Where’s It Headed Now?

Gold-silver ratio

When analyzing the precious metals market, it’s crucial to take a look at the relationship between gold and silver. Precious metals surged at the beginning of 2016. By the end of the year, however, the precious metals market had become choppy. The first month of 2017 began with recovery, and now, metals and miners are looking at YTD (year-to-date) gains.

Silver has risen almost 10.9%, while gold has risen nearly 7.0% since the beginning of 2017 through February 9, 2017. The gold-silver spread was trading at 69.3 on February 9, 2017. The spread suggests that it took almost 69 ounces of silver to buy a single ounce of gold. The peak of the gold-silver spread was close to 85 ounces in late 2008.

Why the Gold-Silver Ratio Fell in 2016: Where&#8217;s It Headed Now?

Why the Gold-Silver Ratio Fell in 2016: Where&#8217;s It Headed Now?

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The gold-silver spread has fallen drastically over the past year. As of February 9, its RSI (relative strength index) was 34.5. Also, it’s trading below is 20-day, 50-day, and 100-day moving averages.

Mean reverting

The gold-silver spread could average 60 over a particular time frame. Notably, in 2011, the spread fell to its lowest level in three decades when gold rose to a record high. In a bull market for precious metals, silver usually outperforms gold. The opposite tends to be the case in a bear market.

The spread recently rose due to a comparatively large fall in silver. When silver outperforms gold, the ratio falls, and when gold outperforms silver, the ratio tends to rise. The average value of this ratio has been ~60 in the past 20 years.

The performances of gold and silver can be tracked through investments in funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). They’ve risen 1.6% and 0.72%, respectively, on a 30-day trailing basis.

Mining stocks are also affected by precious metals, especially gold and silver. Barrick Gold (ABX), Alamos Gold (AGI), Eldorado Gold (EGO), and Alacer Gold (ASR) have recovered along with these precious metals.

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