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Silver May Still Lose Out To Gold Once Covid Effects Fade

Silver May Still Lose Out To Gold Once Covid Effects Fade

David Cottle, Analyst


What's on this page

Silver Prices, Gold/Silver Ratio, Talking Points:

  • The gold/silver ratio has reached notable highs in the wake of the global pandemic
  • However the response to Covid is likely to support gold very strongly
  • The ratio is unlikely to retrace meaningfully

The gold/silver ratio has risen sharply as Covid ravaged global markets and national economies but investors betting for any near-term reversal could be disappointed.

The ratio itself simply represents the number of ounces of silver it takes to buy a single ounce of gold at current prices. It reached 112.82 on March 2. Now, it’s very difficult to talk of all-time highs when it comes to assets valued by humans before recorded history, but this is certainly as high as the ratio has been for more than a century.

And the rise is easy enough to understand. Gold is much more a ‘financial’ or ‘investment’ asset than silver, Industrial use accounts for about 10% of overall gold demand whereas its closer to 50% for the white metal. Therefore, gold’s allure is only burnished by times of economic trouble, whereas silver’s is tarnished by the prospect that that industrial demand will melt away.

Gold is usually too expensive for bulk industrial use, with manufacturers likely to use cheaper alternatives even where it would be idea. Silver on the other hand is one of the best electrical conductors available and comes at far more modest cost.

However, as can clearly be seen from the chart below, the gold/silver ratio had been rising consistently since the middle of 2011, and that process seems unlikely to abate once the Covid froth has been blown from the markets.

Chart created with TradingView

There are various reasons for this but perhaps the most telling is that gold tends to do well when governments are inclined to print money. The metal plays its role of ‘anti-fiat-currency’ asset here. Some investors feel that it is immune from the sort of implicit devaluation they see in expanding the money supply, so they hold it in preference to currency or other paper assets.

Stimulus action also lowers risk free yields on things like Treasury bonds, making non-yielding gold still more attractive by comparison.

As the Covid contagion has unleashed a whole new round of stimulus which may yet be radically augmented, the underlying impulse to hold gold is unlikely to dissipate and rise in the gold/silver ratio will probably continue, if a little more gradually than in early 2020.

Oil - US Crude Bearish
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily 9% -31% 1%
Weekly 3% -24% -2%
What does it mean for price action?
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--- Written by David Cottle, DailyFX Research

Follow David on Twitter @DavidCottleFX or use the Comments section below to get in touch!

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.