uploads///Gold to Silver Ratio

How Did the Gold-Silver Ratio React to Brexit?

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Jul. 1 2016, Published 12:29 p.m. ET

Gold-silver ratio

Gold led precious metals into gains in the first part of this year. However, silver overtook gold. It has seen a YTD (year-to-date) gain of 32.8%—compared to 24.4% in gold. The comparative outperformance of silver is likely due to the resulting dual impact on silver:

  • weakness in the US dollar helped all of the precious metals
  • industrial recovery

Silver is used significantly in the industrial sector, so it rises with increasing optimism in the sector. Recent Brexit unrest resulted in a surge in gold, but silver is still an outperformer YTD.

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The gold-silver spread, or the gold-silver ratio, is an important element to consider when doing a comparative study of these two precious metals. The gold-silver spread was trading at 72.1 as of May 2, 2016. The ratio suggests that it requires almost 72 ounces of silver to buy a single ounce of gold.

RSI level

The RSI (relative strength index) level for the ratio is 39. It’s significantly above the level 20 seen during the past month. A level above 70 indicates that an asset has been overbought and could see a downward revision. A level below 30 indicates that an asset has been oversold and could see an upward revision.

What Brexit did

Due the recent Brexit conundrum, the ratio has been fluctuating. This is because market unrest gives more strength to gold than silver. In contrast, an increase in equity helped silver more than gold.

The relative performance of gold and silver can also be studied through funds such as the iShares Silver Trust (SLV) and the iShares Gold Trust (IAU). The mining funds that also rose due to the precious metal surge include Cia De Minas Buenaventura (BVN), Barrick Gold (ABX), and Coeur Mining (CDE). These three shares saw gained of 21.8%, 23.9%, and 39.2%, respectively.

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