What Does the Gold–Silver Ratio Indicate?



Gold–silver spread

The two crucial precious metals, gold and silver, have been weak for the past few days. However, silver has substantially outperformed gold year-to-date. Silver has risen by 36.1% since the beginning of 2016, while gold has risen by 23.7% during the same timeframe.

The gold–silver spread, or the gold–silver ratio, is an important element to consider when performing a comparative study of these two precious metals. The gold–silver spread was trading at 69.6 on September 1. The ratio suggests that it takes almost 70 ounces of silver to buy a single ounce of gold.

The spread has fallen drastically since 2016 started. That was gold’s highest premium over silver since July.

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Silver outperformed gold

Since the beginning of August, the gold–silver spread has risen by 3.2%. Silver’s performance has been remarkable in the second quarter of 2016. The ratio fell to the lowest level in three decades in 2011 when gold climbed to a record high level.

In a bull market for precious metals, silver usually outperforms gold. The opposite tends to be the case in a bear market.

Although silver has fallen during the last month, it regained its lost strength over gold during the past week, resulting in a fall in the ratio once again.

The relative performances of gold and silver can also be seen through funds such as the iShares Silver Trust ETF (SLV) and the SPDR Gold Shares ETF (GLD). These two funds have seen a year-to-date gain of 36% and 23.5%, respectively.

The mining shares that rose on Thursday, September 1, due to the regained strength of gold and silver include Alamos Gold (AGI), B2Gold (BTG), and New Gold (NGD). These three equities rose by 5.7%, 6%, and 5.6%, respectively. Combined, these three miners make up 4.6% of the price fluctuations in the VanEck Vectors Gold Miners ETF (GDX).


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