When analyzing the precious metals market, it’s important to take a look at the relationship between gold and silver. Most of the time, gold and silver walk hand-in-hand. However, silver often plays a dual role of a precious metal as well as an industrial metal.
As of March 29, 2017, gold and silver have risen 8.9% and 14.2%, respectively, YTD. As silver is frequently used as an industrial metal, the equity market rebound also positively impacts this precious metal.
The beginning of 2017 also saw some market turbulence, boosting the safe-haven appeal of precious metals. The gold-silver spread was 68.5 on March 29, 2017. This spread suggests that it took almost 69 ounces of silver to buy a single ounce of gold on that date. The peak of the gold-silver spread was close to 85 ounces in late 2008.
The gold-silver spread has fallen drastically over the past year. As of March 29, 2017, its RSI (relative strength index) was 25.7. The RSI level points a probable rise in the ratio.
It’s also trading at a considerable discount to its 100-day moving average. This increase in the ratio suggests that it could take more silver ounces to buy gold. Gold and silver were trading at $1,255.3 and $18.3 per ounce on March 29.
Bull market, bear market
Notably, in a bull market for precious metals, silver usually outperforms gold, but the opposite tends to be the case in a bear market. When silver outperforms gold, the ratio falls, and when gold outperforms silver, the ratio tends to rise.
Source: Market Realist