How the Gold-Silver Ratio Has Been Scaling on Silver’s Back



Gold-silver ratio

Amid the significant fall in precious metals prices in the past couple of weeks, silver has taken the lead among the losers. When reading about the precious metals market, it’s important to consider spreads, which reflect the performances of silver, platinum, and palladium compared to gold.

The gold-silver spread is one of the most followed by investors.

On May 8, 2017, gold and silver rose 6.1% and 1%, respectively, YTD (year-to-date). This fall is a tremendous pullback in the two metals, especially silver, compared to 1Q17. Although silver was leading gold during the first few months of 2017, gold has finally overtaken it.

Because silver is frequently used as an industrial metal, a rebound in the equity market usually positively affects it. However, this time around, this didn’t happen.

The gold-silver spread was 75.2 on May 8. Such a spread suggests that it would take ~75 ounces of silver to buy one ounce of gold. The peak of the gold-silver spread was close to 85 ounces in late 2008.

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Spread keeps scaling

The gold-silver spread has increased drastically over the past year. On May 8, 2017, its RSI (relative strength index) was 87.6. This RSI points to a likely fall in the ratio, indicating relative strength for silver.

A fall in the ratio suggests that it could take fewer ounces of silver (SIVR) to buy an ounce of gold (SGOL). Gold and silver were trading at $1,227.10 and $16.30 per ounce, respectively, on May 8.

Of course, mining stocks are also affected by precious metals, especially gold and silver. Goldcorp (GG), Newmont Mining (NEM), New Gold (NGD), and Barrick Gold (ABX) have seen losses along with these precious metals.


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