The Gold-to-Silver Ratio Hitting Highest Since 2022, Where Will Silver Prices Go?

Published on: January 25, 2024
Author: Caroline Kong

Silver prices rallied slightly during the session on Thursday, with analysts suggesting that current prices are near the bottom of a larger consolidation area. Unlike the precious metal gold, which is trying to break out near all-time highs, silver prices are now less than halfway to their all-time highs. This has led investors and analysts to expect highly for a rebound in silver prices.

According to a report released last week by Bank of America commodity analysts, the silver market has managed to hold onto key support levels above $22 per ounce, showing signs of recovery. However, weak investment demand could dampen prices in the short term. So far in January, the silver market has shown a willingness to break out to the upside, but has been weighed down by a broader lack of investment demand.

Analysts note that both exchange-traded funds (ETFs), net non-commercial positions, volumes on the Shanghai Gold Exchange/Shanghai Futures Exchange and purchases of U.S. gold and silver coins have been very subdued.

Meanwhile, growing economic concerns are also weighing on the price of a metal with industrial attributes as unease over the health of the Chinese economy continues to rise.

Bank of America pointed to weak industrial demand as a key reason for gold’s out-performance over silver. During Monday’s session, the gold-silver ratio rose to more than 91 points, hitting its highest level since September 2022. Analysts believe that despite silver’s relative lagging performance, silver prices are expected to regain their lustre later this year, with silver prices expected to average around $23.30 per ounce in 2024, essentially unchanged from last year’s average price.

A bottoming out of the global economy in the coming months will provide support for the silver market, the report reads. Silver imports from Japan and the U.S. are already off their lows and are likely to continue higher. Similarly, China, which was a net exporter of silver at the beginning of last year, has seen a significant reduction in silver shipments by the end of 2023, and discounts on silver trading in the domestic market have disappeared.

Analysts point out that on technical graphics, $22 below silver is a major support level, while $26 above it constitutes a major resistance level. In the short term, if the price pullback amounts to a buying opportunity, the market remains healthy as long as the price stays above the $22 level.

As for the gold-silver ratio, analysts add that, typically, it tends to top out at the tail end of a US rate hike cycle and at the beginning of a rate cut cycle. This is mainly because the process of the interest rate hike cycle usually corresponds to the recovery of the economy and the rise in real interest rates, leading to a decline in the price of gold and silver, while silver is more resilient than gold, and the decline is greater, bringing the gold-silver ratio sharply higher.

And when the market expects the rate hike to end, the economy usually appears to be recession like, gold may be the first to rally, making the gold-silver ratio further increase, followed by a significant silver to make up for the rise, resulting in the gold-silver ratio topped out and fell back. Historically, the normal level of the gold-silver ratio has been between 50:1 and 60:1.

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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