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What the Gold-Silver Spread Indicates

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Gold-silver spread

When considering the performance of precious metals and precious metals mining companies, it’s crucial to look at the relative performance of these metals. Though 2018 started with a bang for precious metals, later the markets got choppy. There has been significant up-down movement in precious metals over the past two months. On a YTD basis, gold has increased 1.7%, and silver has dropped 3.4%. Silver is often more inclined towards its industrial side, which could have been the reason behind the fall in silver during the equity market slump. The movements in gold and silver are also reflected in the SPDR Gold Shares ETF (GLD) and the iShares Silver Funds ETF (SLV). GLD was up 2% YTD, while SLV was down 2.5% during the same timeframe.

Technical analysis

This article will look at the gold-silver ratio. The gold-silver ratio measures the number of silver ounces it requires to buy a single ounce of gold. The ratio was at 80.3 as of February 23, 2018, which indicates that it requires about 80 ounces of silver to buy a single ounce of gold. A rising ratio indicates strength for gold and weakness for silver. Similarly, a fall in the ratio suggests strength for silver and weakness for gold.

The RSI (relative strength index) level of the gold-silver spread was 54.9 on February 23. An RSI below 30 indicates a possible increase in price, while an RSI above 70 shows a possible downturn. Mining stocks that are also impacted by the interplay between gold and silver, as well as the overall mining industry, include First Majestic Silver (AG), Royal Gold (RGLD), Sibanye Gold (SBGL), and Newmont Mining (NEM).

In the next part, we’ll continue this discussion by looking at the gold-palladium spread.

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