How the Global Scenario Is Affecting Gold and Silver



Global outlook

During the past week, the worldwide stock market tumbled after the weak Chinese and British factory data rekindled fears of slowing global growth. The stock market turbulence often helps the haven bids on the precious metals. Thus, gold and silver surged to their multiyear highs. The metals have been on a downward slide for the past couple of days. Gold and silver have lost 0.85% and 2.6%, respectively, on a five-day trailing basis.

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The European Commission warned about the slow-paced growth across many large economies. The Bank of Japan refrained from a stimulus, which hurt the dollar. In China, manufacturing slipped in April, underscoring the market capacity further. All these factors together boosted the appeal of precious metals in 2016.

Silver had outperformed gold in April. Where silver managed a surge of approximately 15% during the past 30 trading days, gold only managed a 4.6% gain during the same timeframe.

Gold-silver spread

The gold-silver spread (or the gold-silver ratio) is a good indicator of the relative performance of these two crucial precious metals. The gold-silver spread measures the number of silver ounces it takes to buy a single ounce of gold. The lower the ratio, the better the strength of silver. The ratio dropped to its multimonth low of 71.5 at the end of April. The ratio has rebounded from this low and is now trading at 73.7.

The RSI (relative strength index) level of the ratio is at 37. A level above 70 indicates overvaluation whereas below 30 indicates undervaluation.

The performance of gold and silver also affects funds like the ProShares Ultra Silver (AGQ), the ProShares Ultra Gold (UGL), the Global X Silver Miner Fund (SIL), and the Direxion Daly Gold Miners Fund (NUGT).


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