Inside the Gold-Silver Ratio: Where It’s Trading, What It Means



Gold-silver ratio

When analyzing the precious metals market, it’s crucial to take a look at the relationship between gold and silver. Precious metals surged at the start of 2016. By the end of 2016, however, precious metal markets had become choppy. By now, they have started to recover, and metals and miners are now looking at YTD (year-to-date) gains.

Specifically, silver has risen ~4.2%, while gold has risen nearly 3% since the beginning of 2017. The gold-silver spread was trading at 71.7 on January 11, 2017. The spread suggested that it took almost 71 ounces of silver to buy a single ounce of gold. The peak of the gold-silver spread was close to 85 in late 2008.

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The gold-silver spread has fallen drastically since the beginning of 2016. The most recent spread marked gold’s highest premium over silver since July 2016. Remember, a decline in the spread indicates relative strength for silver, meaning it would take fewer silver ounces to buy a single ounce of gold.

Mean reverting

The gold-silver spread could average out to 60 over a particular span of time. Notably, the spread fell to its lowest level in three decades in 2011, when gold rose to a record high. Remember, in a bull market for precious metals, silver usually outperforms gold. The opposite tends to be the case in a bear market.

The spread recently rose due to a comparatively large fall in silver. When silver outperforms gold, the ratio falls, and when gold outperforms silver, the ratio tends to increase. The average value of this ratio has been ~60 in the past 20 years.

The performances of gold and silver can also affect funds like the Physical Silver Shares ETF (SIVR) and the Physical Swiss Gold Shares ETF (SGOL). Mining stocks are also affected by precious metals, especially gold and silver. Silver Wheaton (SLW), Yamana Gold (AUY), Sibanye Gold (SBGL), and Gold Fields (GFI) have suffered during the past month due to price falls.


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