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:

Chart

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:

Chart

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.

Chart

 


 

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High Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.

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