11 Jan

The Gold-Silver Ratio Reaction to the Market Turmoil

WRITTEN BY Meera Shawn FEATURED IN Macroeconomic Analysis

Gold-silver ratio

Gold is well known as a store of value in tough financial times. But its counterpart, silver, is less famous as a haven asset. Silver has an industrial status to it, and weaker Chinese markets along with a global stock rout have kept a lid on it. Silver did try to rally alongside gold and gained 0.6% during the past five trading days as of January 8, 2016. During the same time, gold rose 3.6%. The rise in gold more than silver has caused the gold-silver spread, or the gold-silver ratio, to surge.

The gold-silver ratio helps investors determine the number of silver ounces it takes to buy one ounce of gold. The ratio is trading at 79.2, which means that it takes 79 ounces of silver to equal a single ounce of gold. The graph below shows the one-month performance of the gold-to-silver ratio.

The Gold-Silver Ratio Reaction to the Market Turmoil

Gold and silver miners

The upward sloping line in the graph indicates that gold is getting comparatively stronger than silver. The rise in the price of gold has helped gold-mining companies such as Gold Fields (GFI) and Iamgold (IAG), which rose 11.9% and 18.3%, respectively, during the past five trading days as of January 8, 2016.

During the same time frame, silver-mining companies such as Coeur Mining (CDE) and First Majestic Silver (AG) rose 6.5% and 2.8%, respectively. There are several stock-specific factors that may also impact these companies’ share prices.

These four companies together contribute 6.1% to the price changes in the VanEck Vectors Gold Miners ETF (GDX). The Sprott Gold Miners ETF (SGDM) and the Global X Silver Miners ETF (SIL) rose 7.3% and 1%, respectively, on a five-day trailing basis as of January 8, 2016.

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