More to Go on Silver Adjustment

John Robertson

The silver price has begun to retrieve the losses against gold accumulated over nearly five years. The shorter term of the two charts highlights the five percentage point outperformance by the silver price since the end of June and a total gain of 27% since the beginning of June compared with the 12% rise in the gold price. The chart also shows that the upward silver price momentum has stalled somewhat over the last few days. The second chart puts these near term price movements in the broader historical context of the past 35 years. Despite the size of the recent relative price movements, the silver price remains near the upper end of the historical range in the gold/silver price ratio. The historical pattern suggests a strong tendency to mean reversion in the ratio. The history also suggests that the price adjustment process can persist for many months once commenced and before being completed.


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Patrick Fresne

The 20th century silver to gold ratio averaged out at about 47 ounces of silver to one ounce of gold, so assuming 'reversion to the mean' that might imply the ratio will wind up somewhere back around this level.

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Patrick Poke

Great point Patrick, though if you go back further and look at 1687-1900, it was usually in the mid-teens. Given there's around 17.5 times as much silver as gold in the earth's crust (according to USGS), one could make the argument that it deserves to be lower. I wouldn't rely on it, but it's worth considering. Add in the expected increase in demand as the PV industry grows and it seems silver is a space worth watching.

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John Robertson

I usually favour the longest possible historical series so sympathise with your 20th century perspective. The chart which shows an average ratio of 54 is 'confined' to 35 years primarily because, earlier than that, governments had prevented the gold price from fluctuating while the silver price was freer to move.

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