A lot of gold investors who follow what is happening on the COMEX also bet on silver. This group of traders remained bearish for most of the year, but turned their attention for the first time in almost two years to silver mainly because this white metal was getting cheaper to buy compared to gold. It might seem brave to begin gold and silver at the same time, but this seems to have worked for some traders.

Since 1968 gold and silver prices have moved in the same direction on a monthly basis for over 74% of the time. On a year-to-year basis, these two metals have gone in the same direction 39 times over the last 50 years. These metals diverged for 11 years and when that happened gold rose 9 times the amount by which silver fell. The bottom line for investors is that gold always beats silver.

Not all gold or silver buyers are into investing for the long haul. Some precious metals to put them into a “managed money” investment fund which is pretty much the speculative use of the derivatives market. Managed Money funds are mostly bearish because they track the figures from the London Bullion banks. These figures indicated that these London based bullion vaults held about 1.1 billion ounces of silver. When it was recounted after 18 months, it was found that the stockpile had increased by 16.0%.

The price of silver and gold were low in 2015 and silver volumes in London, which is the wholesale market of silver came in high. By the end of 2017, the price of silver had risen and so had the volume. Overall, 2017 was a crazy year for the silver market.

Economists and analysts are all agreeing that the global economy is growing, the inflation is rising and the price of commodities like silver will go up because of the growing industrial demand. We know that silver has a lot of industrial uses so, demand will rise, but, does it really mean the silver market will be positive for investors? Not quite.

For over 5 years, half of the world’s silver has gone to industrial users. Gold barely reached 10%. There is a correlation between the price of silver and the price of gold, which means that silver is also affected by the stock market, inflation and geopolitical tension. However gold has a closer link with the US economic output than silver. But silver does not have the kind of connection you might expect with the stock market as gold has. Remember that Correlation is not causation.

Serious investors might want to consider the co-movement of the price of silver with the GDP when it was at its weakest or strongest. Compare that with other industrial resources like copper to figure out where the price of silver is likely to go.

Correlations also change a lot. This would explain why silver broke away from the gold price in 2018.

A lot of analysts and silver traders were confused by gold not falling when bond yields went up in January. Silver failed to gain, but that just extended the break with gold that seems to have started when the new US administration came into power. Since the end of 2016, the relationship between gold and bond yields has grown weaker. Silver on the other hand has held on to the inverse correlation rising whet bond yields went down and found down when they went up.

Most traders look to the gold/silver ratio when making trades. When the gold/silver ratio reached 85:1, it became the most expensive that gold has been in the last quarter-century. For gold to peak above 80:1 is really rare. Before September 1990, the gold/ silver ratio had never been 81 to 1. It only traded above that level for 29 days in March 1995. When traders use the gold/silver ratio they are betting that when gold is up, silver goes down.

What happens when the ratio falls? Having the ratio go up for gold does not mean the price of silver will go up too. But the fact is, that is how things have worked out at least 79% of the time since comparable modern recordings began in 1968. The price of silver tended to rise when the gold/silver ratio fell except during 1990-1995. The fact that there was a time when things did not work out as analysts expected means that it could happen again – there are no guarantees.

Sources:

Alert: Gold-to-silver ratio spikes to highest level in 27 years!

https://blog.wallstreetsurvivor.com/2018/09/13/is-silver-a-good-investment/