The Gold/Silver Ratio Looks Vulnerable Now

May Silver closed at its highest level of calendar year 2016 on Tuesday, at $16.22.  It’s up nearly 5.5% from Friday.  Associated with this rally has been a decline in the gold/silver ratio, from a high of just over 83, to yesterday’s value of around 77.5.  This ratio currently is on trend line support, as shown on the chart below.  Given Yellen’s renewed dovishness, on display both at the March 16 FOMC, and in a speech on March 29, more speculative corners of the market have tended to find support.  For example, HYG, a hi-yield ETF has been firm, and many commodities have perked up. 

Gold has also had a solid rally this calendar year, but at the margin, there is likely to be diminished ‘safe haven’ demand, a factor which will likely cause the gold/silver ratio to come under further unwinding pressure.  My target is 70-72 on the ratio, but best be nimble on this structure; the global financial architecture remains fragile, and gold still has legions of die-hard fans. 


Alex Manzara

Follow up:

As of the close on April 8 (option expiration), JYM6 settled at 92.465. On March 8 on TraderPlanet, I had suggested buying JY April 91/93 call spread (JYM6 the underlying contract) for 0.30.  As of Friday’s expiration, this trade closed at 2.465, though it only went into the money in the last 5 sessions or so.  While it was a winner, it can be frustrating to watch the market flirt with your long strike before finally breaking through. 






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