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Reading the Gold Spread in Tandem with the Fed

PART:
1 2 3 4 5 6 7 8
Part 7
Reading the Gold Spread in Tandem with the Fed PART 7 OF 8

Comparing the Two Brothers of Precious Metals: Gold and Silver

Gold versus silver

Gold and silver had been negatively impacted over the past few days as speculations concerning the Fed’s June decision hang heavily in the air. Gold and silver have dropped 1.1% and 3.6%, respectively, over the past five trading days.

Silver mostly follows the trend in gold, but sometimes it goes off on its own because it’s also an industrial metal and thus reacts to the industrial needs of equity markets. Silver is extensively used for the production of electronic items and solar panels.

Comparing the Two Brothers of Precious Metals: Gold and Silver

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On a trailing-30-day basis, both these metals have seen significant gains. The iShares Gold Trust (IAU) and the iShares Silver Trust (SLV), which follow gold and silver closely, have dropped 0.25% and 2.1%, respectively.

The gold-silver ratio

To assess the relative performance of gold and silver, we use the gold-silver ratio, which measures the number of silver ounces it takes to buy a single ounce of gold.

On June 12, the gold-silver spread was 74.2, which indicates that it takes almost 74 ounces of silver to purchase one ounce of gold. The spread has narrowed considerably from last week. The gold-silver spread touched the peak of 85 in late 2008. The RSI level of the gold-silver ratio is now at 66.3.

Mining shares that are significantly impacted by the play in gold and silver and the overall mining industry include Alacer Gold (ASR), AngloGold Ashanti (AU), Alamos Gold (AGI), and First Majestic Silver (AG).

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