The Gold-Silver Ratio Continues to Rise – Precious Metals Supply and Demand

Acting-Man

 

Is Silver Hard of Hearing?

The price of gold inched down, but the price of silver footed down (if we may be permitted a little humor that may not make sense to metric system people). For the gold-silver ratio to be this high, it means one of two things. It could be that speculators are avoiding the monetary metals and metal stackers are depressed. Or that something is going on in the economy, to drive demand for the metals in different directions.

As a rule the gold silver ratio acts as a proxy for credit spreads – this is attributable to the fact that silver prices are partly driven by the metal’s large industrial demand component (by contrast, the vast bulk of gold demand consists of monetary or investment demand; industrial and fabrication demand in the gold market are negligible by comparison). In the chart above we compare the gold-silver ratio to the IEF-JNK ratio, which serves as a proxy for corporate credit spreads (note: “unadjusted” means that only prices are compared, not total returns – interest payments received by holders of IEF and JNK are not included). An interesting divergence has emerged since the 2014-2016 oil patch mini-bust – while the gold-silver ratio is streaking to new highs, the IEF-JNK ratio has established a lower high in late 2018. We believe this is mainly due to the massive distortion of credit markets in the wake of the QE and ZIRP/NIRP policies pursued by the world’s largest central banks. One of these markets is wrong and it is a good bet that the market that has been manipulated by central bank interventions is the one that is giving a false signal. [PT]

One metal is money without counterparty risk. The other is also money but a big part of its demand is from its use in a wide variety of products.

Our president simultaneously told us that the economy is strong, and that the Fed ought to lower rates. If the economy were strong, the demand for silver should be higher. If the Fed lowers rates, then that should rapidly increase the quantity of money and, every speculator knows that should drive prices up.

From the price action, one would say that silver does not seem to be getting either of these messages.

Incidentally, we are doing something to affect the demand for silver—we are paying interest on silver, in silver. We are opening a fresh silver lease deal this week. Contact us, if interested (pun intended).

Fundamental Developments

Anyway, let’s look at the supply and demand picture of silver (and gold too). But, first, here is the chart of the prices of gold and silver.

Gold and silver priced in USD

Next, this is a graph of the gold price measured in silver, otherwise known as the gold to silver ratio (see here for an explanation of bid and offer prices for the ratio). The ratio went up again this week. It is now near a …read more

Source:: Acting Man