UNITED STATES April 25 2016 4:36 PM
NEW YORK (Scrap Register): Silver is known by a number of pseudonyms, but most of the names in a financial context relate to gold; “Poor man’s gold” and “High - beta gold” to name just two. It is therefore not surprising that silver ’s value is often referenced to gold in terms of the gold - silver ratio. Since the infamous Hunt brother’s cornered the market and were unceremoniously squeezed out in the late 70’s / early 80’s, silver has tended to amplify gold’s trading patterns, both on the upside and on the downside.
The silver revaluation cycles tend to be multi-year, with earlier cycles as long as a decade. We are not suggesting that this is the cusp on a long term rerating cycle but even within a derating cycle , silver can remain dormant and underperform gold for significant periods before suddenly catching up ; it tends to be a late cycle play in the precious metals space . When this happens, it tends to happen quickly as has been the case this week. Silver is now up 25% year to date, versus gold at 18%. Deutsche Bank thinks momentum could carry silver as high as $20 an ounce in the near term.
In order to see a continued rerating of silver versus gold, we need to see a number of financial conditions either continue or for momentum to continue. The first is a favourable environment for precious metals in general. The dovish Fed, an accommodative ECB and market expectations of a low probability of a Fed hike in the near term means that the financial conditions for gold remain favourable.
“In our view, a near - term catalyst to drive gold higher is not obvious, but we think the metal remains well supported. The long - term gold silver ratio (since 1973) is 57.7. The more recent range is however 85 during the depths of the global financial crisis to 35 during the period of recovery and unprecedented Quantitative Easing. If gold stays relatively range bound at $1,250/oz, a silver rerating to 66.6 (the average 1983 – 2003), the silver could trade up to $18.8/oz, and a silver rerating to 61.1 (the average since 2003), then silver could trade as high as $20.5/oz,” analysts at Deutsche Bank added.