SILVER ISHARES REACH FOUR-YEAR HIGH -- SILVER CONTINUES TO OUTPACE GOLD --THE GOLD/SILVER RATIO AT ALL-TIME HIGH -- WHICH MAKES SILVER HISTORICALLY CHEAP
SILVER ISHARES HIT FOUR-YEAR HIGH... Precious metals (and their mining ETFs) are rising again today with all of them hitting multi-year highs. As has been the case recently, however, silver (and its miners) are actually rising faster than gold (and its miners). The black daily bars in Chart 1 show the Silver Trust iShares (SLV) trading above its 2019 peak putting them at the highest level in four years. The SLV/GLD relative strength ratio in the upper box shows silver rising faster than gold since March. Part of the reason for silver's greater strength may be due to its role as both a precious and industrial metal. Industrial metals fell sharply during the first quarter when the global pandemic caused a flight out of more economically-sensitive markets (including stocks); while safe haven gold held up much better. Silver and other industrial metals (like copper) bottomed with stocks at the start of the second quarter and have been doing better since then. The red line shows the close correlation between copper and silver this year. Copper has reached the highest level in more than a year. Stocks tied to all three commodities have done even better than the metals this year. And silver miners have done better than gold miners since March.
SILVER HAS A LOT OF CATCHING UP TO DO... The weekly bars in Chart 2 show the same Silver IShares trading at the highest level since 2016. Despite its recent gains, the SLV/GLD ratio in the upper box remains in a downtrend extending back four years. That suggests that silver has a long way to go to catch up with gold. The same is true with its miners. Chart 3 plots a relative strength ratio of the Global X Silver Miners ETF (SIL) divided by the VanEck Vectors Gold Miners ETF (GDX) over the same four years. The circled area shows silver miners rising faster than gold miners since March; and trying to break a four-year downtrend that favored gold miners.
SILVER IS A LOT CHEAPER THAN GOLD... The monthly bars in Chart 4 (plotted on a log scale) show a wide discrepancy between gold and silver over the last nine years. The circle in the upper box shows the gold/silver ratio weakening over the past quarter, but not by much. The wide discrepancy between the two metals does show, however, that silver is much cheaper historically than the other precious metal; in fact, it's the cheapest in half a century.
GOLD/SILVER RATIO AT ALL-TIME HIGH... Chart 5 plots the gold/silver ratio back to 1970 and shows three major trends during that half century. The rising ratio during the 1980s favored gold over silver; the falling ratio between 1990 and 2010 favored silver over gold. Since 2011, the rising ratio has favored gold over silver. The boxed area in the upper right shows the ratio dropping this year from a record high. If the gold/silver ratio is peaking, that would suggest that the recent trend favoring the gray metal over the yellow metal may be just starting.
