Silver Growth Out Shines Gold’s Rally

Gold gained $1.40 on Wednesday to trade at 1147.90 but spent most of the day flat after gains in the Asian session. There was very little on the economics calendar on Wednesday, but once again Federal Reserve members were on the speaking schedule. Traders on Thursday morning sold off the shiny metal to book profits. In the Asian session gold is down $5.30 at 1143.40 while silver took a much bigger hit after its meteoric climb. Silver declined 434 points to 15.66 giving up its $16 price level.

The Federal Reserve should be communicating its views of the economy well enough that markets will not be taken by surprise by an eventual interest-rate hike, a top U.S. central banker said.

While it is not a problem if traders are not fully pricing in a rate increase before it happens, “it shouldn’t be the case that no one is expecting a rate increase,” San Francisco Fed President John Williams told reporters after a speech here. The comments suggest that the Fed must do quite a bit of communicating if its officials are to feel comfortable raising rates this year, as Williams says he thinks will be appropriate. The Fed last month held off on raising interest rates, citing concerns about global risks and low inflation.

Over the past three months, the economy has added jobs at the slowest pace since February 2014. Employers were adding an average of more than 200,000 jobs each month since the spring of last year, but now that pace has slowed.

Speaking with reporters after his speech, he rejected descriptions of the September jobs report as dismal. “If we added 150,000 jobs per month we would eventually reach unemployment of 3% over a long period.”

Mr. Williams said Thursday, before the jobs report was released, that a rate increase could come as soon as this month. On Tuesday, he declined to say whether he expects the Fed to move later this month, but told reporters the latest employment figures didn’t change his view on when the Fed should raise its benchmark short-term interest rate from near zero.

Silver gained a great deal of momentum and was able to break the $16.00 price level adding 96 points in the quiet trading session on Wednesday. Chinese buyers continue on holiday leaving volumes a bit low. Platinum added $12.65 to 947.30. In the morning session on Thursday platinum gave back 50% of its gains to fall to 941.35.

The ratio of gold to silver measures how many ounces of silver it takes to buy an ounce of gold. A higher ratio denotes a large number of silver ounces required to purchase a single ounce of gold. A higher spread, or ratio, means the yellow metal is outperforming the white metal and vice versa. With gold and silver prices at ~$1,144 and $15.90 an ounce, respectively, the ratio currently stands at 72.1824 as of October 8, 2015. The ratio has fallen steadily since it reached a peak of nearly 80 in August after China spooked the international markets. The ratio had been around 60 in 2013. Below is a chart that gives the gold-silver spread analysis over the past two months as reported by Market Realist.

It seems that the ratio reached its peak due to the slowdown in global economic growth. Silver is highly sought for its industrial use. The fall in economic activity and aggravated concerns of China’s industrial growth following its currency devaluation led to a fall in silver prices. Silver prices are substantially affected by industrial growth. China is the number one commodity and raw material buyer. A fall in the white precious metal leads to a drop in the gold-to-silver ratio, which means it takes more silver ounces to buy gold. Currently however, silver is leading. Silver has risen a whopping 9.73% in the past five trading days.