TDS expects Gold/Silver ratio to drop to around 62

UNITED STATES May 03 2016 8:35 AM

NEW YORK (Scrap Register): TD Securities looks for silver to continue outpacing gold, calling for the gold/silver ratio to fall to around 62. The ratio measures how many ounces of silver it takes to buy an ounce of gold, and this has been declining lately, meaning silver has been rising even faster than gold. 

As of early Monday, it stood at a little over 72 after being above 80 in the not-too-distant past. “Given the Fed's signals that it is in no hurry to tighten monetary policy and a weakening USD (U.S. dollar), TD Securities analysis suggests that the environment for gold will continue to be favorable, with the yellow metal testing recent highs at around $1,307/oz,” TDS notes. 

The firm issued its forecast just ahead of the weekend, and gold has nearly risen to this level so far Monday. “As such, silver's significantly more robust historic trough-to-peak price movements relative to gold, a still high gold/silver price ratio, tightening fundamentals, and higher volatility look set to propel (silver) prices to above $20/oz in the first half of 2016. This implies a gold/silver ratio of roughly 62x, given where gold is likely to be.” TDS says this target is achievable even though “overextended” long positioning could result in sharp corrections. 

Still, TDS says, Federal Reserve rate-hike ambiguity and associated downside risk for the U.S. dollar, moderating “carry costs” of holding zero-yielding assets, the June vote on the U.K. leaving the European Union, and economic uncertainty “should keep money flowing into the precious-metals complex.”