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Which Direction Could Gold Take with Duality in the Markets?

PART:
1 2 3 4 5 6 7
Part 3
Which Direction Could Gold Take with Duality in the Markets? PART 3 OF 7

Why the Gold-Silver Ratio Is Slowly Falling

Gold-silver ratio

When analyzing the precious metals market, it’s important to take a look at the relationship between gold and silver. Most of the time, gold (IAU) and silver (SLV) move in the same direction. So far in 2017, gold and silver have risen 7.7% and 13.5%, respectively.

The last quarter of 2016 was choppy for these metals. The start of 2017 has seen some turbulence in the markets, thus boosting the haven appeal of precious metals.

The gold-silver spread was trading at 68.3 on February 16, 2017. The spread suggests that it took almost 68 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 Is Slowly Falling

Why the Gold-Silver Ratio Is Slowly Falling

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The gold-silver spread has fallen drastically over the past year. As of February 16, 2017, its RSI (relative strength index) was 37.6. It’s also trading below its 20-day, 50-day, and 100-day moving averages.

Mean reverting

The gold-silver spread could average 60.0 over a stipulated time frame. 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.

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 ~60.0 in the past 20 years.

Mining stocks are also affected by precious metals, especially gold and silver. Barrick Gold (ABX), Royal Gold (RGLD), B2Gold (BTG), and Eldorado Gold (EGO) have recovered along with these precious metals.

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