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 66.1 as of August 2, 2016. This ratio suggests that it takes almost 66 ounces of silver to buy a single ounce of gold. The ratio has seen a fall of approximately 13.7% since the beginning of 2016.
Silver has a dual role. It’s used as a haven during times of uncertainty, but it’s also used as an industrial metal. The rise of equities spurs industrial growth, which can help silver. Any economic crisis or political unrest can also make silver rise due to a call for safe havens.
In 2016, there was both a safe-haven bid for silver during the UK’s Brexit referendum and industrial demand. Gold depends on safe-haven bids alone to go higher.
Silver has indeed outperformed gold in 2016. The year-to-date gain in gold has been 28.7%, while silver’s gain is at 48.9%. Over the past 30 trading days, silver has increased by about 5.7%, while gold barely managed a surge of 1.8%.
Remember, the gold-silver ratio reads the performance of gold versus silver, and a downward movement means that silver is getting stronger, while an upward movement means that gold is getting stronger.
The RSI (relative strength index) level for the gold-silver ratio is now 36.2. 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.
Notably, the leveraged Direxion Daily Junior Gold Miners Bull 3x ETF (JNUG) and the Velocity Shares 3X Long Gold ETN (UGLD) have increased by a whopping 39.2% and 10.2%, respectively, on a five-day trailing basis.
In the next and final part of our series, we’ll take a closer look at the recent performances of mining companies.