The ratio of gold to silver continues to climb! Has hit a 27-year high, does this mean that the silver gain is brewing?
On Monday (May 13th), most of the world's assets have experienced different degrees of decline due to risk aversion. The gold futures price for June delivery rose to $1301.80 per ounce, since 1267.30 on May 2. The dollar/ounce low rebounded sharply. It is worth noting that despite the rise in gold prices, silver did not follow the rebound. It closed at $14.777 per ounce on the day and fell 1.3% since May. The gold-silver ratio is once again approaching the highest level in history. Market participants are chasing gold and ignoring silver, which is also the overall trend of 2019.
The history of gold and silver ratio
The gold-silver ratio refers to how many ounces of silver an ounce of gold corresponds to the current market price. The source of the gold-and-silver ratio can be traced back to 3000 BC, which is 5,000 years ago. At the time, the first Egyptian Pharaoh Maynes specified that two and a half silver were equivalent to one gold. In modern times, since 1974, the average ratio of gold to silver ratio is 55:1, which is about 55 ounces of silver per ounce of gold.
As shown in the quarterly chart, the gold-to-silver ratio has fluctuated between 15.47 and 93.18 over the past 45 years, with an average of 54.325. When the ratio of gold to silver is lower than 55:1, it shows that from a historical point of view, silver prices are relatively high relative to gold. The last time this happened was in 2012. When the ratio of gold to silver is higher than the average, the price of silver is relatively low relative to the price of gold.
Gold and silver hit a 27-year high
The quarterly chart shows that at the close of May 13, the price of gold was $1301.80 per ounce, the price of silver was $14.777 per ounce, and the ratio of gold to silver was over 88:1, the highest since 1992. The highest value of the gold-to-silver ratio was 93.18:1 in 1990, when the price of gold fluctuated between 346 and 428 US dollars per ounce, and the price of silver fluctuated mainly between 3.93-5.445 US dollars per ounce.
In 2018, gold and silver prices fell simultaneously as US interest rates rose and the dollar strengthened. Gold fell to a low of $1,116.40 in mid-August last year, which was $115.20 higher than the December 2015 low (and also the key technical support for the gold market). At that time, silver waited until November to hit a low of 2018, but it was closer to the technical support level than the price of gold. Silver fell to $13.86 in November last year, only 22.5 US dollars higher than the December 2015 low of $13.625. Minute.
It is worth noting that gold and silver rebounded sharply after hitting a new low in 2015, and in July 2016 they rose to their respective new highs of $1377.50 and $21.095 per ounce, which also became the resistance level of their prices. Based on the closing price on May 13, the price of gold is only $75.70 from the high point, 5.8% lower, and the silver price is $6.318, which is 42.8% lower than the resistance level.
Will the silver rally come back?
In general, both gold and silver have a tendency to move closer to the average. Does this mean that after rising to a new high, the ratio of gold to silver will fall? The rise of silver is coming soon?
As mentioned above, inter-commodity spread indicators such as gold and silver ratios often provide investors with clues as to whether the value of the commodity is overvalued or undervalued. Today, the ratio of gold to silver is shocking, and it shows that from a historical perspective, either the price of gold is too high, or the price of silver is too low, or both.
Gold and silver arePrecious metal. They have many similar characteristics, such as a long history, which can be applied to the industrial and manufacturing industries. But they also have no use. For example, central banks around the world have been net buyers of gold in recent years. They regard gold as a reserve asset, while the price of silver is mainly higher or lower with speculative sentiment.
In the current market uncertainty, the risk aversion raises the price of gold and causes market participants to temporarily avoid the speculative silver market, which is also an important reason why the ratio of gold to silver is rising. but,Precious metalAnalyst Andrew Hecht said that the future trend of silver prices may surprise investors: not only from a historical perspective, silver prices are undervalued, but the weekly chart also shows that market selling may soon end.
The weekly chart shows that the total number of short positions and long positions in open interest or silver futures markets tends to be flat near the 200,000 hand level. However, both price volatility and relative strength indicators are in oversold areas, and the 5.57% volatility per week is also too low for the silver market. Since July 2016, the weekly chart has been in a bearish trend, but it also means that the rebound has been brewing, just waiting for the right time. In addition, the huge gap between the price of gold and the price of gold also supports the correction of the rebound in the silver market.
In summary, Hecht pointed out that now the gold and silver ratio has climbed to the highest level in 27 years, and the price trend on the weekly chart also shows the oversold situation of silver. These two key trends may support the rebound of silver in the near future.
(Article source: Golden Ten data)