LBMA 2019: Silver Prices ‘Not Healthy,’ Gold Ratio to Stay High
The comments below are an edited and abridged synopsis of an article by Adrian Ash
The gold/silver ratio is likely to hold near 2019’s three-decade highs according to analysts and investment managers speaking at the LBMA conference in Shenzhen, China. The gold price is trading at 85 times the price of silver, making gold more than 50% more expensive than its half-century average against silver.
This year’s highs in the ratio came after silver fell by $2 per ounce over the 18 months to July 2019, but gold held steady.
Silver prices then surged by 30% to peak at 3-year highs of $19.65 in early September, and that crushed the gold/silver ratio from a near all-time record of 93—its highest since March 1991—to dip below 80 less than 2 months later.
But the ratio has since reversed half of this drop, and guest speakers on day two of the conference saw little cause for it to fall steeply, meaning silver is unlikely to outperform gold.
Over the last 30 years, the gold/silver ratio has only contracted when global economic growth has been accelerating, or the world’s central banks have been disinterested in buying gold.
Official-sector gold demand last year set a half-century record, and looks set to match or beat it in 2019. Global GDP growth is forecast at 3.2% this year and 3.4% in 2020, down from 3.5% in 2018.
Average daily silver volumes on the SGE had doubled by October, reaching $7.5 billion the Friday before the LBMA conference, and overtaking the Comex derivative exchange’s volumes by value. This jump has come from private investors trading on leverage, making it a short-term volatility trade driven by speculators rather than long-term holders.
However, SGE gold volumes have also reached all-time records in 2019. Indeed, this is the first time that Chinese gold investing has participated in a global rally for the yellow metal, Reade said.
For silver, China’s technological demand remains strong, most notably in solar energy.
A high gold/silver ratio has encouraged some investors to think that silver is under-valued, and when the GSR has risen above 80 in recent years, the following drop has come from silver prices rising rather than gold falling, because the cheaper metal played catch-up with gold’s underlying trend.