A sharp correction in the gold/silver ratio could lead to further gains for silver versus gold.
The gold/silver ratio has broken down through the 96.499 support level and that could lead to a further correction toward the 74.66.
The gold/silver ratio has been on an uptrend from lows in 2021 and has consolidated in the last two years. An outperformance in silver does not mean that the price of gold has to suffer, but that silver’s gains should be larger than those of its rival precious metal.
Reasons for the move could be related to a pullback in central bank buying, an increase in retail silver buying, and/or increased business demand or supply shortage. Industrial demand was higher for silver in 2024, and investors are hoping for further gains due to green energy demand.
The price of silver (XAGUSD) has vaulted higher in the last week to $36.40, with the 2011 high up at $48.
“The breakout has been brewing for a while,” said Maria Smirnova, senior portfolio manager at Sprott Asset Management. “Silver had attempted to break through the $35 level a couple of times in recent months, so this is highly significant”.
“Furthermore, if the technical move catalyzes physical investor buying, it can take silver much higher very quickly,” she added.
The market for silver is valued at only $2 trillion, compared to gold’s $22 trillion. That makes silver prices more volatile. Precious metals will be in focus this week with the US consumer price index for May, released later on Wednesday.
Regardless of market dynamics, the recent price activity in the ratio could make silver investments more rewarding than gold.
Global gold ETF flows moved negative in May (-US$1.8bn) with North America (-US$1.5bn) and Asia (-US$489mn) leading the outflows while Europe witnessed inflows (+US$225mn).
The market may be getting cautious with the trade tariff issues facing a possible conclusion with the US and China talks.
