It’s important for investors in the precious metal market to look at spread measures like the gold-silver ratio. Most of the time, gold and silver move together. However, silver often plays a dual role as a precious metal and as an industrial metal.
As of April 18, 2017, gold and silver have risen 12% and 14.8%, respectively, year-to-date. Silver tends to be a more volatile metal than gold. The well-known gold and silver funds that closely track these metals are the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV).
The beginning of 2017 saw some market turbulence, which boosted the safe-haven appeal of precious metals. The gold-silver spread was 70.3 on April 18, 2017, suggesting that it would take almost 70 ounces of silver to buy a single ounce of gold. The peak of the gold-silver spread was close to 85 in late 2008.
The ratio in the past year
The gold-silver spread has fallen drastically over the past year. On April 18, 2017, the spread’s RSI (relative strength index) was 73, indicating a probable fall in the ratio.
The spread is also trading at a considerable premium to its 100-day moving average. This rise in the ratio suggests that it could take more ounces of silver to buy gold. Gold and silver were trading at $1,286.8 and $18.3 per ounce, respectively, on April 18.
Bull markets and bear markets
In a bull market for precious metals, silver usually outperforms gold, but the opposite tends to be the case in a bear market. When silver outperforms gold, the ratio falls, and when gold outperforms silver, the ratio tends to rise.
Of course, mining stocks are also affected by precious metals, especially gold and silver. Pan American Silver (PAAS), Sibanye Gold (SBGL), Yamana Gold (AUY), and IAMGOLD (IAG) have recovered their losses along with these precious metals.