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The Silver Market: Fundamentals, Spreads, and More

PART:
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Part 2
The Silver Market: Fundamentals, Spreads, and More PART 2 OF 6

The Gold-Silver Ratio, an Important Indicator for Silver

Silver’s slump

In addition to being a precious metal, silver has several industrial uses. Silver, primarily used for the production of electronic items, serves as a good indicator of how the economy is performing.

Among precious metals, silver has been the most heavily impacted over the past month. On a trailing-30-day basis, silver has dropped ~9.4%, gold has fallen 4.3%, and platinum has fallen 5.2%. Palladium, the only metal to keep its shine, has risen 0.84% in the last month.

The Gold-Silver Ratio, an Important Indicator for Silver

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Gold versus silver

To assess silver’s performance, we can compare it with gold’s performance using the gold-silver ratio. On May 16, 2017, gold and silver rose 0.52% and 0.87%, respectively.

On May 16, the gold-silver spread was 73.4, which indicates that it would take ~73 ounces of silver to buy one ounce of gold. The spread narrowed considerably from the previous week. The gold-silver spread peaked in late 2008, at close to 85 ounces. It has widened drastically over the past year.

Funds and miners

Gold’s and silver’s performance can be tracked through funds such as the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). Year-to-date, these funds have gained 7.3% and 5.4%, respectively. Mining shares that have fallen over the past month due to the slide in precious metal prices include Alacer Gold (ASR), Harmony Gold (HMY), Eldorado Gold (EGO), and AngloGold Ashanti (AU).

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