The Gold-Silver Ratio Rises: Has Gold Reclaimed Its Status?



Gold closes at its lowest price since February

Gold futures for August expiration saw their lowest close in the past three months on June 1, 2016. Gold fell by 0.24% and closed at $1,214.7 per ounce. Silver futures for July expiration also fell by 0.42%, closing at $15.9 per ounce.

An easier way to understand the comparative performance of gold and silver is via the gold-silver ratio or spread. The ratio is a measure of the number of ounces of silver it takes to buy a single ounce of gold. The ratio was trading at 76 as of June 1.

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Gold-silver spread

The gold-silver spread fell significantly in April 2016 as silver rose sharply, leaving gold behind. However, silver’s subsequent fall once again lifted the spread.

The RSI (relative strength index) for the gold-silver ratio fell to near 30 at the start of May. An RSI level of above 70 indicates that a stock has been overbought and could see a downward revision. An RSI of below 30 indicates that a stock has been oversold and could see an upward revision. Therefore, as predicted, the ratio rose, as shown in the above graph.

Fluctuations in gold and silver impact funds such as the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). These two funds have seen rises of 14.3% and 15%, respectively, year-to-date. However, May was a month of heavy losses for most precious metals–based funds.

Miners plunged

Gold and silver miners that saw falls in May included Yamana Gold (AUY), Coeur Mining (CDE), and Pan American Silver (PAAS). These three shares fell by 10.6%, 7.3%, and 6.9%, respectively, last month. Combined, these three miners make up 6.2% of the VanEck Vectors Gold Miners ETF (GDX).


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