Giles Coghlan LLB, Lth, MA
Financial Source
The problem of silver's oversupply solved by gold's price
I was reading a Bloomberg article yesterday which explained that this year is the 8th year of oversupply for silver. These large stockpiles of silver are part of the reason that silver prices have remained relatively subdued due to gold prices. Take a look at the gold/silver price ratio and you can see that gold is trading at a very high price in relation to silver. The implication is that silver prices are due a correction higher based on the ratio.
Why is silver so over-supplied?
Well, this is because silver is always the bridesmaid, but never the bride. Silver is often mined as a byproduct of copper and gold mines. Wanted gold, but found silver. Ok, put it in the silver pile. The silver pile has grown and it is still dug up even as demand falls as it is a byproduct.
Why will silver still probably rise?
Silver may be only be the bridesmaid, but when gold is the real bride silver wins too. Silver has a very close relationship with gold. It has a daily correlation of 0.8 and a beta of over 1.3 from the last 5 years.
Therefore, expect gold's ascendancy to drag silver higher along with it as long as the market situation remains the same.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD stays in positive territory above 1.0850 after US data
EUR/USD clings to modest daily gains above 1.0850 in the second half of the day on Friday. The improving risk mood makes it difficult for the US Dollar to hold its ground after PCE inflation data, helping the pair edge higher ahead of the weekend.
GBP/USD stabilizes above 1.2850 as risk mood improves
GBP/USD maintains recovery momentum and fluctuates above 1.2850 in the American session on Friday. The positive shift seen in risk mood doesn't allow the US Dollar to preserve its strength and supports the pair.
Gold rebounds above $2,380 as US yields stretch lower
Following a quiet European session, Gold gathers bullish momentum and trades decisively higher on the day above $2,380. The benchmark 10-year US Treasury bond yield loses more than 1% on the day after US PCE inflation data, fuelling XAU/USD's upside.
Avalanche price sets for a rally following retest of key support level
Avalanche (AVAX) price bounced off the $26.34 support level to trade at $27.95 as of Friday. Growing on-chain development activity indicates a potential bullish move in the coming days.
The election, Trump's Dollar policy, and the future of the Yen
After an assassination attempt on former President Donald Trump and drop out of President Biden, Kamala Harris has been endorsed as the Democratic candidate to compete against Trump in the upcoming November US presidential election.