By Giles Coghlan, Chief Currency Analyst at HYCM
Silver set to shine?
The gold/silver ratio is a scale that helps measure the relative strength of gold compared to silver prices. It shows how many ounces of silver are needed in order to purchase one ounce of gold. In order to achieve this number, you simply divide the current price of gold by the current silver price. When you have done this you will have the gold/silver ratio. It is a very simple way to see which of the two metals is gaining value relative to the other.
Using the gold/silver ratio
Whenever the gold/silver ratio rises it means that gold has become more expensive in comparison to silver. You can see how the gold/silver ratio varies over time and how current levels show that silver is undervalued compared to gold. Take a look at the gold/silver ratio chart below:
Recently gold has been looking like it is set to break out of its recent range towards $1800. Furthermore, the fundamental conditions for gold are strong. The USD is expected to weaken, gold-backed ETF’s gaining week after week, and some private banks are encouraging high net worth individuals to allocate more gold into their portfolios. The case for gold and silver longs is looking strong and gold has been an attractive hedge during the last few recessions:
Expect silver buyers at the market and on breakout of the ascending silver trend line. Although the gold/silver ratio has fallen from recent highs – silver still looks good value over the medium term. The main risk for silver buyers would be a swift recovery in the global economy on a COVID-19 vaccine. This would negate the need for precious metals as central banks would start the normalisation progress.