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A Quick Look at the Relationship between Gold and Silver

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Spread measures

Though gold and silver are the top two haven precious metals and tend to move in tandem, 2018 has been a little surprising. We’ve seen unrest in the market during the last month, pulling gold higher. However, gold’s movements haven’t substantially buoyed silver. On a YTD (year-to-date) basis, silver has fallen 3.4%, and gold has risen 0.77%.

As equities have strengthened and the dollar has rebounded, we’ve seen silver falling more compared to gold. Silver has fallen 4.3% in the past week, and gold has fallen 2.3% during the same timeframe.

Movements in gold and silver are reflected in the iShares Gold Trust ETF (IAU) and the iShares Silver Trust ETF (SLV). IAU and SLV were down 0.32% and 0.19%, respectively, on April 26.

Gold overpowering silver?

The comparative performances of these metals can be seen via the gold-silver ratio, which is a measure of the number of silver ounces it takes to invest in a single ounce of gold. The spread was at 79.5 on April 26, which means it requires almost 79 silver ounces to buy a single ounce of gold. An increasing ratio suggests more strength for gold against silver. A drop in the spread indicates strength for silver and weakness for gold.

The RSI (relative strength index) level for the gold-silver spread was 39 on the same day. An RSI of below 30 indicates a possible increase in price, while an RSI of above 70 shows a possible downturn. There could be a revival in the RSI indicator if silver gets stronger than gold. Mining stocks that are also affected by the interplay between gold and silver and the overall mining industry include Goldcorp (GG), Alamos Gold (AGI), Hecla Mining (HL), and First Majestic Silver (AG). GG, AGI, and HL were down 2.1%, 0.19%, and 1%, respectively, on the day, while AG was up 1.5%.

In the next part of this series, we’ll look at the gold-palladium spread.

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