What: The gold:silver ratio is suggesting that silver could become the precious metal of choice, after the ratio has risen to its highest level since March 2016. When this ratio is high is suggests that silver is looking cheap relative to gold, which can spur demand.
How: Many experienced precious metals traders use this ratio to help them to determine the optimum time to buy gold or silver.
Right now, markets are difficult to read – stocks have been falling this week, but volatility remains close to historic lows. Bond yields are low globally and the oil price is falling. This could boost silver’s attractiveness relative to gold, because it tends to have a higher beta to risky assets compared to the yellow metal. Thus, as long as volatility does not spike in the short term, then silver may outperform gold.
From a technical perspective, silver has found decent support around $16.40; this could open the way to a recovery back towards $18. Silver bulls may also be emboldened by the fact that during the recent sell off the price did not fall to $16, the low from mid-May, suggesting that there is latent demand for this precious metal.
We recommend keeping an eye on the gold:silver ratio, if we are correct, then silver should start to rally, partly because it is looking better value than gold.
Disclaimer: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warrant that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, the author does not guarantee its accuracy or completeness, nor does the author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.