Silver strong, gold weakens
The price of the benchmark silver futures contract on COMEX, the commodity division of the New York Mercantile Exchange, had been declining substantially—to below $15 an ounce, far outpacing the slide in gold—until the first week of October 2015. Silver had been experiencing a bear market since November 2013, following a three-decade high of $48.59 per ounce in April 2011, slumping by almost 70% afterward.
In the first week of October 2015, however, the gold-to-silver ratio began to retreat as silver gained momentum and continued to surge while gold alternated days of profits and losses. The relative strength of silver and gold can be determined by this ratio. A fall in the ratio signifies a strengthening silver compared to the yellow metal.
Tracking ETFs and miners
Share prices of some silver-mining companies have lost about a quarter of their value in 2015, yet production is rising. Companies like Pan American Silver Corporation (PAAS), Silver Wheaton Corporation (SLW), and First Majestic Silver Corporation (AG) have declined immensely over the past trading year, witnessing falls of 23.30%, 25.70%, and 46.50%, respectively on a YTD (year-to-date) basis. These three companies together make up 7.10% to the VanEck Vectors Gold Miners ETF (GDX), which has witnessed a fall of 21.70% on a YTD basis in 2015. The SPDR S&P Metals and Mining ETF (XME) has also declined by ~36% on the same basis.
But silver’s previous downfall has been emblematic of the downfall in the overall commodity markets. The S&P GSCI (Goldman Sachs Commodity Index) tumbled 14% in July 2015, reaching ten-year low prices. After piling into commodities during an earlier boom, investors are now facing a major crisis in commodity investments with tumbling prices.
China and the Fed
Meanwhile, concerns surrounding China and the rising uncertainty on the US Fed’s ongoing rate-hike decision is adding fuel to the fire for commodities and lovers of precious metals alike, because silver plays a dual role of being an industrial as well as precious metal. In this sense, silver recovery can operate on two levels—one in manufacturing activity, which can buoy silver overall, and another in rising economic worries, which can give further calls for the white precious metal.
Read the next part of this series, wherein we’ll return to gold for the final analysis.