Gold Silver Ratio Narrowing

Barry Norman
Gold & Silver

Gold made a comeback on Thursday as traders remained a bit confused between Federal Reserve member comments contained in the FOMC minutes and more recent public addresses. Speculator are almost certain that the Fed will raise rates before the end of 2016 but remain unsure when and how high. Marketwatch reported that according to the Fed minutes, officials at the late-July meeting were relieved that their worst fears about the economy didn’t materialize. But they were divided on whether that meant they should quickly resume lifting interest rates, according to the minutes.

The minutes disappointed those traders betting the Fed had turned more hawkish, especially after the New York Fed chief, William Dudley, said earlier this week the panel could possibly raise rates as soon as September. Fed-funds futures markets price in slim odds for a September or December hike, with the odds turning closer to even for early 2017.

As for the future, “the mother of all bull markets has only just begun”, according to Peter Grandich, the self-styled former Wall Street whiz kid. Writing on his website, he says he believes gold is in the earliest stages of what could turn out to be its biggest bull market ever.

He argues that the $1,000 per ounce level is now key long-term support, that a major geographical shift has been underway of key ownership of physical gold from the West to the East and that we’re at least heading back to the highs of 2011 – and sooner than most think.

“The bullish fundamentals for gold ownership grow almost daily,” writes Grandich, adding that “gold is the ultimate contrarian play and, on a valuation basis compared to stocks and bonds, relatively cheap.”

He concludes: “Whether its debt bombs all around the world, paper currencies being debased faster than ‘Grant took Richmond’, or central banks getting ready to launch funny money from helicopters in a last futile attempt to correct their quantitative easing failures, take your pick on the inevitable ignitor that will lead to a blow up of financial systems. It’s not if, but when.”

The yellow metal is heading for its highest ever price in sterling and could climb much higher still, even in dollars, analysts reckon. “UK investors who climbed into gold ahead of the referendum will have thus really appreciated the safe-haven power of gold working its magic” said a well-known gold trader.

The Federal Reserve will take its time raising US interest rates, underpinning the ongoing rally in emerging market assets, according to one of the world’s largest fund managers. In the meantime, gold’s relationship with stocks has hit an all-time low – which could be another reason to buy, according to analysts quoted by CNBC. It was last trading at $1,350.66 per ounce.

Just weeks ago the ratio between gold and silver prices hit the sort of highs rarely seen in modern history. You could get more than 83 ounces of silver for the price of a single ounce of gold on March 10.

But things have changed. Now the ratio is down to 78 or so, which means you can now only get 78 ounces of silver for your ounce of gold.

What this means is that, after a precious metals rally largely focused on the yellow metal, silver is now joining in and rising faster than its big brother. Silver bullion prices surged 3.6% on Tuesday and have risen 8% in just six trading days. Silver surged 89 points on Thursday to trade at 19.737. The rise came against a backdrop of negative economic data, concerns about corporate earnings, the US and global economies and weakness in stock markets globally.

Investment demand remains robust as seen in the silver holdings of the iShares Silver Trust, the biggest exchange-traded product in the metal. Its holdings have increased by nearly 9% this year. Demand for silver bullion legal-tender coins such as those from the Perth Mint, is very strong. The mint reported that it had its second-best month of demand ever in March.

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