Unlike the usual trend among precious metals, gold and silver have not been moving in tandem during recent times. With the gold-silver ratio reaching decade-high levels, silver will have to catch up with its rally sooner than later.
In the past one month, gold in the New Delhi spot market has moved up from Rs 31,900 per 10 gm to Rs 32,780 per 10 gm. In the Indian market, gold climbed to a six-year high. Similar prices were last seen in November 2012.
But silver has come down during the same time. Silver was trading at Rs 39,800 per kg in the first week of October. From there, prices have fallen to Rs 39,110 per kg in the first week of November.
In the international market, gold moved up from $1,190 per ounce to $1,240 per ounce within a month. During the same period, silver didn’t even move a dollar. It stood at $14.4 per ounce in the first week of October and is currently trading at $14.8 per ounce.
Usually gold and silver not just move in tandem, but silver will be more volatile during the ups and downs in the bullion market. But any such activity was absent in the silver counter in the recent times.
Gold has been gaining due to its safe haven status. Initially, when tariff war erupted between the US and its trading partners, gold could not attract interest of investors who wanted to shift to safer assets during times of turmoil. The strength in dollar due to rate hikes and positive economic indicators in the US prevented gold from making gains.
But when IMF indicated slower economic growth due to trade war, investors were really worried. IMF in its World Economic Outlook Report cut the global growth forecast for next year by 0.2 percentage points due to trade tensions between the US and its trading partners.
The sell-offs in the Asian equity markets were not influencing the gold market much, but when it reached the US shores, things started changing. Mid-October, Dow Jones industrial average plunged 830 points, the second biggest single-session drop in the year. “The Asian markets, including Indian equity markets, have been seeing considerable weakness of late. European market too had taken some beating due to Italy’s budget deficit in the last week of September. The single-session drop in Dow Jones saw investors moving to safe haven assets like gold,” said Himanshu Gupta, vice-president and head of commodities & currencies research, Globe Capital.
Trade war, slower economic growth and equity market weakness saw the number of new accounts opened on BullionVault jumping to its highest level since August and ETF holdings of gold too surging after months of decline.
Difference of opinion between the US president and the US Fed too kindled hopes that probably interest rate hikes will be reviewed and the dollar would stop strengthening.
All these factors that were working in favour of gold didn’t seem to affect silver. Silver prices have been taking cues from the base metals, which witnessed considerable weakness due to trade war fears, its impact on China and industrial production as well as the global growth.
But silver cannot stay unaffected by movements in gold for long. Canadian investment bank TD Securities foresees silver prices moving to $17 an ounce by the end of next year – a gain of 15.5 per cent.
Gold-silver ratio, which denotes the ounces of silver required to buy one ounce of gold, currently hovers around 85. This is its highest level in more than a decade. The average gold-silver ratio for the past 20 years has been 60 and every time the ratio moves up and down, it has returned to the average.
Going by the trend, it is high time for silver to move up and get closer to the average levels. Once gold prices start steadily moving up due to the weakness in the equity markets and that in the dollar, silver will make larger strides.