Understanding Precious Metals and their Cross Rates

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Understanding Precious Metals and their Cross Rates PART 1 OF 6

Inside the Gold-Silver Ratio in 2017

Gold-silver ratio

When analyzing the precious metals market, it’s important to take a look at the relationship between gold (IAU) and silver (SLV). Most of the time, these two big precious metals and silver walk hand-in-hand.

As of March 7, 2017, gold and silver have risen 5.4% and 9.4%, respectively, YTD. Silver is frequently used as an industrial metal, and so the equity market rebound also positively impacts this precious metal.

Inside the Gold-Silver Ratio in 2017

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The last quarter of 2016 was choppy for these metals. The beginning of 2017 also saw some market turbulence, boosting the safe-haven appeal of precious metals. The gold-silver spread was 69.2 on March 7, 2017. This spread suggests that it took almost 69 ounces of silver to buy a single ounce of gold on that date. The peak of the gold-silver spread was close to 85 ounces in late 2008.

Steadying ratio

The gold-silver spread has fallen drastically over the past year. As of March 7, 2017, its RSI (relative strength index) was 60. It’s also trading below its 100-day moving averages. This rise in the ratio suggests that it could take more silver ounces to buy gold. Gold and silver were trading at $1,231 and $17.9 per ounce on March 7.

Notably, in a bull market for precious metals, silver usually outperforms gold, but 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 over the past 20 years. Of late, the ratio has not shown any major fluctuations, ranging between 67 and 69.

Of course, mining stocks are also affected by precious metals, especially gold and silver. Newmont (NEM), Sibanye (SBGL), Gold Fields (GFI), and AuRico Gold (AUQ) have recovered losses along with these precious metals.

Continue to the next part for a look at the gold-platinum ratio.


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