Silver price rally continued as the market continued to focus on the overall dollar weakness. The dollar index, which measures the value of the dollar against a basket of other currencies remained under pressure today. This is partly because of Fed’s open-ended quantitative easing policy and the fact that the number of Coronavirus cases in the US has continued to rise.
Still, the market has observed an important occurrence that happened recently. The closely-followed gold and silver ratio climbed to the highest point in more than 5,000. The ratio measures the amount of silvers that can buy an ounce of gold. In the past century, the ratio has oscillated around 25. However, this level stands at more than 110. This is the highest the ratio has been since 5,000 years according to data from MarketWatch.
What does this mean? It simply means that the value of silver, which is often known as gold’s small brother, is undervalued. This does not mean that silver is not an automatic buy. In fact, as you can see in the chart below, silver has always underperformed the performance of gold.
Part of the reason for this is that silver is an industrial metal. Most silver is used in the manufacture of mirrors and jewellery. Only a small part of silver is bought as an investment. In fact, the iShares Silver Trust, the biggest silver ETF has assets of more than $5.53 billion. This is significantly lower than the SPDR Gold Trust, which has gold worth more than $52 billion. Therefore, as the economic crisis has continued, investors are likely pricing-in low demand for the metal.
A positive thing is that more investors are rushing to silver. According to Kitco, silver ETFs have reported significant inflows as investors increase their bets that the price will follow that of gold.
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Gold Silver Ratio
Silver Price Technical Analysis
Looking at the hourly chart, we see that silver price has attempted to resume the upward trend. We also see that the price is currently in the fifth wave of the Elliot Wave. This is confirmed by the fact that the fourth wave reached the 38.2% Fibonacci Retracement level. This means that the price will likely continue rising, and possibly pass this year’s high of 15.52.
On the flipside, it is possible that the price could move lower and retest the 50% Fibonacci Retracement level.