Why There Is Disconnect Between Gold And Silver Prices

(June 25,2020 - Jayesh Khilnani)

The Gold-Silver ratio internationally made a high of 124 before retracing to 100. The spread has given correction of approximately 61.8 percent from the high

India’s gold future contract traded on the Multi Commodity Exchange of India (MCX) touched its lifetime high price of Rs 48,589 per 10gm on 24 June 2020. On the other hand, price of silver is still 8 percent away from its 52-week high and 35 percent away from lifetime high of Rs 73,600 per kilogram hit in April 2013.

The gap between gold and silver has only widened in the last few years with Gold returning 80 percent in the last 5 years while Silver has returned little over 30 percent during the same time. Gold prices have had a very strong start to the New Year, with global uncertainties working in its favor says Navneet Damani, Vice President Commodity & Currency Research, Motilal Oswal Financial Services Limited.

Consistent gold buying by few central banks like Russia, China, Turkey and others have been building the investors’ confidence too, he added.

The Gold-Silver ratio internationally made a high of 124 before retracing to 100. The spread has given correction of approximately 61.8 percent from the high and has again started showing positive momentum as it has broken the resistance line which indicates that it is likely to resume its bull run again as per a research report of Motilal Oswal.

This ratio tells us how many ounces of silver it will take to buy 1 ounce of gold. The current spread between gold-silver at 100 looks positive towards 105 and 109. However, a convincing breach below 97 could push it lower towards 93 also said Damani. A larger trajectory for the spread favors gold to silver given the current macro backdrop and silver over the last few years has been behaving more like and industrial metals than precious metal, he concluded.