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Understanding Precious Metals and Cross-Commodity Rates

PART:
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Part 7
Understanding Precious Metals and Cross-Commodity Rates PART 7 OF 7

Behind the Gold-Silver Relationship in 2017

Volatility measurements

Between the top two precious metals—gold and silver—silver is known to be more volatile. If we look at the call implied volatility of these two metals, gold’s metric is close to 10%, while silver’s metric is close to 20%. Remember, silver is not only a precious metal but also an industrial metal used in electronics and solar conductors.

The iShares Gold Trust (IAU) and iShares Silver Trust (SLV) are also used as trackers for these metals. These two funds have seen YTD (year-to-date) gains of 13.7% and 7.3%, while they’re looking at 30-day trailing losses of 0.94% and 2.6%, respectively.

Behind the Gold-Silver Relationship in 2017

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Spread analysis

The gold-silver spread measures the price of one ounce of gold in relation to silver. As of September 25, 2017, the gold-silver spread was 76.2. That indicates that it takes almost 76 ounces of silver to buy a single ounce of gold. The RSI (relative strength index) for the gold-silver spread is now 79.1, and such a high level indicates the possibility of a fall in the spread.

As you can see in the graph above, the spread declined steadily after the start of 2016, which indicates that it takes fewer ounces of silver to buy one ounce of gold. But any rise in the spread indicates strength for gold and weakness for silver.

Mining stocks that are significantly impacted by the interplay between gold and silver and the overall mining industry include Kinross Gold (KGC), New Gold (NGD), Iamgold (IAG), and Franco-Nevada (FNV).

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