Gold and silver prices had a rough summer season. After trading to a high of $1365.40 on the continuous futures contract in April, selling in the gold market took the price of just over the $1160 level in mid-August when the dollar index reached its most recent peak at 96.865. Gold dropped to its lowest level since early 2017.
The price of silver fell to a new low for 2018 in July along with gold, but silver waited until September to reach what now stands as a bottom at $13.91 per ounce, the lowest price since early 2016 for the precious metal. After probing below the $14 per ounce level, the price of silver recovered. However, gold and silver are still trading a lot closer to their lows that their highs for 2018 as we move towards the end of the year.
In 2015, 2016 and 2017, the precious metals had experienced selling pressure during the final month of the year. Fed rate hikes in December had weighed on the prices of the precious metals, and the Fed plans to hike the short-term Fed Funds rate at their December meeting. By the end of 2018, the Fed Funds rate which was at zero before December 2015 will stand at 2.25-2.50%.
Meanwhile, silver has been a lot weaker than gold since June which could mean that investment and speculative interest in the precious metals arena have declined dramatically as prices moved to the downside.
The ratio has been around for thousands of years
Sometime around 3,000 BC, the first Egyptian Pharaoh Menes declared that two and one-half parts silver equal one-part gold. The Pharaoh’s declaration was the first recorded comment on the relationship between the two precious metals and their roles as a means of exchange.
Gold and silver have had long histories as money. The Spanish Empire rose to the top of the heap in Europe after the discovery of massive reserves of silver in Peru. One of the primary issues that voters faced during the 1896 Presidential election in the U.S. was which metal would serve as a backing for the U.S. dollar. The winner, William McKinley favored gold, while his challenger William Jennings Bryan wanted silver to be the metal that provided the value for the U.S. currency.
Summary
- The ratio has been around for thousands of years.
- The argument for watching the ratio.
- The argument against watching the price relationship between gold and silver.
- Extensions in markets can lead to volatility.
- Leveraged ETN products in silver turbocharge results but do not sit on them for too long.
Original Source: Seeking Alpha