COMMENTARY – Gold-silver ratio hints at potential silver price breakout

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By David Brough

The high price of gold relative to silver could position silver to break out and chase gold higher as COVID-19 tightens its grip on the global economy.

The gold:silver ratio has been elevated as gold has powered ahead, buoyed by its “safe haven” appeal. Bullion rose 4.2 percent in the week leading up to the Easter weekend.

Gold traded up 2.5 percent at $1,686.85 per ounce on April 9 after the U.S. Federal Reserve announced a $2.3 trillion stimulus package for local government and small and medium sized businesses.

Bullion was not far short of its highest in more than seven years of $1,702.98 per ounce touched on March 9.

Silver was up 2.6 percent to $15.44 per ounce on April 9.

 

COMMENTARY – Gold-silver ratio hints at potential silver price breakout

 

Much of the reason for gold’s relative strength to silver is that the yellow metal has less industrial application than silver.

Gold has often rallied as stock markets tumbled since the coronavirus outbreak: investors took flight to the safety of gold, while silver lagged and remained more closely linked to equities.

“Silver has perhaps less of a precious metals investment following among the funds and high profile investors out there than gold, primarily because many see it as an industrial metal, but with precious metals overtones,” wrote Lawrie Williams, precious metals commentator for bullion dealer Sharps Pixley.

ETF Daily News wrote this week: “Typically, silver lags gold’s breakout but then makes up for lost time with velocity, as it outperforms gold following the eventual breakout.”

Some analysts feel that stock markets are set for further downward corrections due to the ongoing economic havoc heaped by coronavirus.

That could give room for further upside in precious metals, notably gold.

Physical metals are proving difficult to source during the lockdown and are attracting high premiums, jewellers say.

As well as gold, silver can potentially attract more investor flows due to its precious metal status.

“Gold is the key here and while we don’t necessarily see an immediate huge upturn in price it could well get to say $1,800 (per ounce) within the next couple of months,” Williams wrote.

Stimulus measures by central banks have raised fears that inflation could pick up eventually — a bullish signal for gold, which is often seen as a hedge against rising prices.

“Gold is likely to profit from the unprecedented glut of central bank money and new debt,” Commerzbank analysts said in a note.

Williams said in his commentary: “The gold-silver ratio at the moment seems well anchored at the 100-plus level.

“There are signs that it may be beginning to come down and it could well fall back to the 80s or 90s, meaning that, in percentage terms, the price will at last start to rise faster than gold, which could make it a positive investment at current prices.”

Disclaimer: Any opinions expressed in this article are solely those of the author and should not be seen as investment advice.