Is This Precious Metal Too Cheap?


Political uncertainty and economic jitters have lifted precious metals recently. But which has more upside potential?

Silver futures (@SI) are trading near their cheapest ratio to gold futures (@GC) in over 16 years. History may suggest their valuation gap will narrow if current market conditions persist.

Gold has historically been the calmer metal, while silver is more volatile and moves more quickly. (This relates to its higher storage cost.) Generally bullish periods for precious metals see the grey metal rising more quickly than the yellow one. For example, that happened 2003-2007, 2009-2011 and early 2016.

Just the opposite is true when investors shun precious metals. Just look at 2011-2015 or 2017 through the end of November.

But this month has been different as investors worry about the government shutdown and massive selloff in equity markets. Gold and silver bullion, along with companies extracting metal from the ground, are pretty much the only gainers in the entire market over the last month.

Are we at the start of a new cycle for precious metals? Clients will have to research that and decide for themselves. But they might want to consider this historical relationship between gold and silver in their trading.

Disclosure: This post is for educational purposes only and shouldn’t be interpreted as a trade recommendation.

Gold and Silver futures, with ratio. Green arrows show bullish periods, red show bearish.
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David Russell is Global Head of Market Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.