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Gold and Silver Price Relationship?

Commodities / Gold and Silver 2011 Aug 12, 2011 - 05:31 AM GMT

By: Ian_R_Campbell

Commodities

The following table sets out the closing Gold and Silver prices beginning last Wednesday - which I now refer to as 'Grey Thursday' - through to last night at 10:00 p.m. ET.


  Gold Close % Change Silver Close % Change Gold/Silver Ratio
Wednesday August 3 1,665.60 - 41.87 - 38.8:1
Tuesday August 4 1,653.30 (0.7) 39.11 (6.6) 42.3:1
Friday August 5 1,663.40 0.6 38.32 (2.0) 43.4:1
Monday August 8 1,760.40 5.8 39.16 2.2 45.0:1
Tuesday August 9 1,756.10 (0.2) 38.33 (2.1) 45.8:1
Wednesday August 10 1,806.30 2.9 39.51 3.1 45.7:1

The data in the table is from Kitco. With the exception of Wednesday, August 10 the gold and silver prices are at midnight. The gold and silver prices for Wednesday, August 10 were taken from Kitco at approximately 9:30 p.m. ET.

These prices suggest that in one week (assuming the Wednesday, August 10 closing prices are not different from the prices at 9:30 p.m. ET) the physical gold price has increased by U.S.$140.70, or 8.4%, while the physical silver price has decreased by U.S.$2.36, or (5.6%). The gold/silver ratio has increased by 6.9:1 or 17.8%.

If anything has been written about these price and ratio changes, I have missed it. The financial markets have been in turmoil for the past week, with principal factors cited for this including concerns over the ongoing Eurozone Sovereign Debt problems and the August 5 S&P U.S. Credit Rating downgrade. Many commentators have attributed the unusually rapid rise in the gold price to gold being seen as a 'safe haven'.

I am somewhat perplexed with the fall in the price of silver when the price of gold has risen so much, and wonder - in circumstances where physical silver is thought by many to be a safe haven -

  • whether there are unusual market forces at work,
  • whether gold is simply perceived as a better safe haven than is silver if 'push comes to shove',
  • or whether a combination of those two things, or other things, are at work.

It would be interesting to know more about why these quite different gold and silver prices have resulted. I would be interested in reading any analytic article or commentary that deals with reasons for the price differences reflected in the foregoing chart. It may prove very interesting, and perhaps telling, to watch and think about the comparative gold and silver prices in the next days and weeks in the contexts set out in the foregoing table.

Interestingly, I read last evening that effective after the close of business today, August 11, Comex has raised the margin requirements for trading gold futures on the Comex Division of the New York Mercantile Exchange. It will be interesting to see if that has any noticeable impact on the price of physical gold beginning tomorrow and over the next few days.

About Ian R. Campbell

Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining and Oil & Gas Companies listed on the Toronto and Venture Exchanges. Ian can be contacted at icampbell@srddi.com

© 2011 Copyright Ian R. Campbell - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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