The problem of silver's oversupply solved by gold's price 

I was reading a Bloomberg article yesterday which explained that this year is the 8th year of oversupply for silver. These large stockpiles of silver are part of the reason that silver prices have remained relatively subdued due to gold prices. Take a look at the gold/silver price ratio and you can see that gold is trading at a very high price in relation to silver. The implication is that silver prices are due a correction higher based on the ratio. 

Silver

 

Why is silver so over-supplied? 

Well, this is because silver is always the bridesmaid, but never the bride. Silver is often mined as a byproduct of copper and gold mines. Wanted gold, but found silver. Ok, put it in the silver pile. The silver pile has grown and it is still dug up even as demand falls as it is a byproduct. 

 

Why will silver still probably rise?

Silver may be only be the bridesmaid, but when gold is the real bride silver wins too. Silver has a very close relationship with gold. It has a daily correlation of 0.8 and a beta of over 1.3 from the last 5 years.

Silver

Therefore, expect gold's ascendancy to drag silver higher along with it as long as the market situation remains the same. 

 


 

Learn more about HYCM

 

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.

Analysis feed

FXStreet Trading Signals now available!

Access to real-time signals, community and guidance now!

Latest Analysis


Latest Forex Analysis

Editors’ Picks

EUR/USD recovers towards 1.1750 as risk-on rules

EUR/USD is back around 1.1750 as upbeat US data fueled equities' early rally. Concerns about economic progress remain in the background, as the pandemic keeps taking its toll. 

EUR/USD News

GBP/USD bounces from 1.30 as demand for the dollar eases

Dollar's corrective advance seems complete, now down against most major rivals. GBP/USD trades little changed for a second consecutive day in the 1.3060/70 price zone. Market players continue to ignore upcoming Brexit chaos.

GBP/USD News

Gold: Interesting Fibonacci extension projects a move to $2500

Gold has risen 10.74% in the month of July, the biggest monthly increase since February 2016. As the price is breaking all-time highs it's hard to say where the yellow metal could end up.

Gold News

ETH/BTC skyrocketing, Bitcoin stays above $11,000

The cryptocurrency market is influenced by leveraged positions liquidation. Cryptocurrency experts expect further growth amid a global flight to safety assets. ETH/BTC hits the highest level since May 2019.

Read more

WTI drops below $40 on demand worries, OPEC+ output increase

Crude oil prices posted losses last week and seem to be struggling to shake off the bearish pressure on Monday. As of writing, the barrel of West Texas Intermediate (WTI) was trading at $39.85, losing 1.5% on a daily basis.

Oil News

Forex Majors

Cryptocurrencies

Signatures