ROSS NORMAN : Gold/Silver Ratio Hits 100 to 1
If you can tell much about a person from how they behave under adversity, then so it is for metals.
When things are going swimmingly we can all look the part, but throw in a tariff-fuelled panic and things can change shape quite quickly. It is during price corrections such as the current one where markets show their true character. Just how strong is underlying sentiment.
So what did we learn …
Seen through the silver lens … well we sensed silver was largely coming along for the ride but was not terribly enthusiastic. The merest whiff of a correction and silver was off and over the hill. Despite some compelling fundamentals and more than its fair share of hyperbole from its supporters, the reality is its support base was quite thin. The specs ran for the exit in an undignified and disorderly rush. The gauge to measure the relative price of gold to silver today nudged 100:1, the highest in 5 years (which was an all time high at 113.
To show just how out of line things are for silver, consider that it is 14 times as abundant as gold and the true ratio should therefore be 14:1 and not 100:1 ... interestingly this was also the price differential in Roman times between respective gold and silver coins.
The odd thing is silver has a good story ; five consecutive years of supply deficits, a tight market with lease rates nudging 6% and significant flows out to NY (and with no central banks to help out in extremis). (Unfounded) fears that it would be subject to tariffs also failed to make a discernible impact. Speculative positioning on COMEX looks encouraging at a near five year high and likely this is where we saw the sell off.
I don't mind saying I am long silver in my pension and that position currently has a large question mark over it.
It is also a truism to say you can also tell something about a person from the company they keep ; well it is starting to look like gold is dis-associating itself from silver.
In a normal sharp sell-off one might expect or hope for a 50% bounce between highs and the low to validate that the market is actually in rude health … and we got that … or near enough. From a high of $3164. to a low of $3058 we should expect $3111 – and we are at $3107.
It does beg the question why is gold and its alter ego silver on different paths and I think it underscores this is not a normal investment lead rally – it is a very narrow central bank one .. which favours the one … and not the other.
My reading … all good for gold and we expect a steady price recovery in due course … while for silver, it needs to take itself aside and have a good hard think.
Ross Norman
CEO
Metals Daily
www.metalsdaily.com