Analyzing the Gold-Silver Ratio as August Begins



Volatility measures

When you consider investing your money in precious metals, it’s important to look at precious metal spreads. Silver is often a more volatile metal than gold. Due to its low trading price compared to gold, silver volumes could remain higher.

The call implied volatilities in gold and silver as of August 3, 2017, were 9.3% and 17.4%, respectively. Call implied volatility is a measurement of the changes in the price of an asset given the changes in its call price.

When looking at the performances of gold and silver, analysts also look at funds such as the iShares Gold Trust (IAU) and the iShares Silver Trust (SLV). These two funds have seen YTD (year-to-date) rises of 10.1% and 4.0%, respectively.

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Spread analysis

The gold-silver spread measures the price of one ounce of gold in relation to silver. As of August 3, 2017, the gold-silver spread was 74.5. That level indicates that it takes almost 74 to 75 ounces of silver to buy a single ounce of gold. The relative strength index for the gold-silver spread is at 37.2. Such a low level indicates the possibility of a revival in the spread.

As you can see in the graph above, the ratio has been steadily rising, which indicates that it takes more ounces of silver to buy a single ounce of gold. Similarly, any fall in the ratio indicates strength for silver.

Mining stocks that are significantly impacted by the interplay between gold and silver and the overall mining industry include Barrick Gold (ABX), Coeur Mining (CDE), Agnico-Eagle Mines (AEM), and Alamos Gold (AGI).


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