Gold/silver Ratio Is Dropping, Will It Continue to Do So?

Published on: Mar 16, 2024
Author: Caroline Kong

The record high price of gold has delighted some precious metals investors and make those who missed the rally regret. However, some market analysts pointed out that investors can now look for opportunities in other precious metals, and silver’s next performance is worth looking forward to.

While gold prices hit record highs this month, the silver market has been relatively calm. However, careful investors should have noticed that the gold/silver ratio, which is an indicator of the relative strength of gold and silver prices, has just dropped from 89 at the start of the week to 85.50, suggesting that investors start to pay attention to silver.

Although this still means that it takes 85.50 ounces of silver to buy an ounce of gold, and the gold/silver ratio has historically averaged between 50-60. However, spot silver prices stood at $25 per ounce this week, hitting a new near three-month high. Against the backdrop of an earlier surge in gold prices, silver is now starting to show momentum, which is a relief for silver investors.

The May silver futures contract on the New York Mercantile Exchange last traded at $25.440 an ounce, up 3.6 per cent from last week. Meanwhile, the April gold futures contract last traded at $2,161.10 an ounce, down 1 per cent from a week ago.

Many analysts say that if the silver market sees some solid follow-through buying next week, it would be significant in consolidating the current bullish momentum in the precious metals market. Michele Schneider, head of trading training and research at MarketGauge, says that gold and silver are bullish in the short term, but that silver remains an attractive inflation hedge due to its industrial demand.

One question investors need to think about, she notes, is what is the reason behind the price of silver catching up? Is silver poised to hedge against a second wave of inflation? Or is it that gold has risen above $2,100 and silver still looks ridiculously cheap, so investors are starting to buy at the bottom? Since both possibilities exist, we can expect silver prices to move higher in the near future.

She added that it is not too late for investors who have missed the gold market bull run, as the price of silver is likely to rise to $35 or $40 per ounce.

Silver is starting to attract some significant investor interest as silver-backed ETFs have seen significant inflows, with 600 tonnes in Monday’s session alone, the strongest one-day increase since January 2021, noted Carsten Fritsch, precious metals analyst at Commerzbank.

Fritsch said this instantly reversed all the outflows since the beginning of the year. While the price of silver is hardly likely to hit all-time highs like gold, silver still has a lot of upside potential. Commerzbank has raised its year-end silver price forecast to $29, betting for silver prices outperforming gold in the second half of the year.

If you’re interested in investing in silver, you might want to keep an eye on this company: Silver Storm Mining Ltd. (TSXV:SVRS). Silver Storm Mining Ltd. holds advanced-stage silver projects located in Durango, Mexico. Golden Tag recently completed the acquisition of 100% of the La Parrilla Silver Mine Complex, a prolific operation which is comprised of a 2,000 tpd mill as well as five underground mines and an open pit that collectively produced 34.3 million silver-equivalent ounces between 2005 and 2019. The Company also holds a 100% interest in the San Diego Project, which is among the largest undeveloped silver assets in Mexico.

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