What has Caused the Current Massive Spike In Gold/Silver Ratio?

The Gold-Silver Ratio Recently Spiked at 125, When Will it Revert Back to the Mean

Below is an abridged version of an article by Simon Black of SovereignMan.com about why the price of silver could skyrocket.

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Why do recessions, and extreme turmoil, often lead to a massive spike in the gold/silver ratio?

Or, asked differently, why does gold often go up, and silver stays flat (or falls) during such occasions?

Gold is still widely used as a reserve currency by central banks and governments around the world and investors still buy gold as a hedge against inflation and uncertainty.

Silver, on the other hand, while also a hedge against inflation and uncertainty, has countless industrial applications so silver’s demand fundamentals are more heavily influenced by overall economic health.

If the economy is in recession, silver prices can fall because there is less demand from industry.

A History of Spikes in the Gold/Silver Ratio

  1. Just prior to World War II as Hitler launched his invasion of Poland, the ratio spiked to 98:1.
  2. In 1991 as the first Gulf War began, the ratio again reached 100:1.
  3. Today we are back again in that territory; as of this morning, the ratio is 112:1, and it’s been as high as 120 or more in recent weeks.

The Effect of Massive Dollar Creation

Given the current COVID-19 crisis and the effect it is having on the world’s economy, central banks around the world are beginning to print an extraordinary amount of money and cause governments to go into a ridiculous amount of debt.

The Federal Reserve in the U.S., for example, his already expanded its balance sheet by US$6 trillion, nearly a 50% increase from last month, and they are just getting started.

…to continue reading the full post of this abridged article, visit munKNEE.com

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 CHART 1: Gold-Silver Ratio – October 2019 to April 2020

2020-04-20 Gold-Silver Ratio chart
Source: StockCharts.com
About Chris Thompson 354 Articles
Chris Thompson is the President and Director of Equity Research at eResearch. He is a Professional Engineer and CFA Charterholder with a MBA in Investment Management and over 15 years of experience in software development, FinTech, telecommunications, and information technology. For the past 10 years, he has worked in the Capital Markets in Equity Research, M&A Investment Banking and Consulting in various sectors.