US Stock-market correction may trigger decline in Gold-to-Silver ratio


NEW YORK (Scrap Register): The consultancy Metals Focus looks for the gold/silver ratio to eventually decline, perhaps whenever a meaningful stock-market correction occurs.

The ratio measures how many ounces of silver it takes to buy an ounce of gold, with a smaller number meaning silver is outperforming, and vice-versa. Last week, the ratio neared 80:1, the highest since July.

Metals Focus said professional investors and those with a long-term approach, such as pension funds, may be deterred by silver’s smaller market size.

Meanwhile, silver is more of an industrial metal than gold, thus may have been dragged lower lately with other base metals in part on concerns about growing debt levels in key commodity consumer China, Metals Focus added.

A recovery in gold prices should help silver. With a December U.S. rate rise now largely factored into current prices, the scope for further downside should be limited.

Ultimately, Metals Focus said, the big stock-market rally may prove unsustainable as U.S. tax plans are likely to be either watered down or a deal is delayed or fails to materialize.

Any stock-market correction should bolster the case for investment in precious metals. The fact that the size of the silver market is smaller and hence less liquid than gold will amplify the impact of speculative interest on the price, which will eventually lead to a decline in the gold/silver ratio.

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