Analysts have been saying lately that until the global economic growth picks up, the gold to silver ratio may remain at elevated levels.
This ratio is used for measuring the amount or ounces of silver needed to buy an ounce of gold. A high number usually indicates gold or even silver’s out performance and vice-versa. The current gold/silver ratio is 75:1, but analysts predict the ratio may change to a range of 70:1 to 76:1. This is a prediction that we may expect in the next few months.
According to RBC Capital Markets, the ratio has traditionally been around 60:1, but in recent years it fell at around 32 in ratio before it climbed up to its current level.
If you look at RBC Capital Markets’ view, they believe that silver may benefit from the continued economic recovery of the U.S., but the ratio may remain at elevated levels if the global economic growth will not pick-up. They also added that the gold: silver ratio usually rises during a recession, also known as a period of economic uncertainty.
The Canadian Bank also believes that if there is an improvement in the global economy, it will provide positive outcomes for silver relative to gold. Moreover, Metal Focus said that they do not envision the ratio to be falling dramatically even if lately, there is a stronger retail demand for U.S. Silver Eagle Bullion Coins. There is actually a 26% rise in the first-half of silver bullion coins that are imported to India.
The firm also indicated that the question of whether a wider group of investors will return as buyers will be a challenge for silver. Metals Focus supported this idea by stating that silver’s immediate upside prospects is perceived as less convincing for institutional investors. Metals focus also mentioned that another major drag on investor sentiment is the uncertain industrial outlook, which brings down silver’s industrial credentials. Several factors are in turn reflected through the uncertain industrial outlook, most relating to China.
These factors are:
1) The heightened concerns regarding the global economy’s prospects, which was brought upon by the Chinese equities slump and what’s happening in Europe, in spite of having an apparent deal with Greece.
2) A key consumer of silver components in China, light vehicles, has already been affected by the slowdown in China.
3) The possibility of China’s massive photovoltaic capacity program being undermined if the country’s economic uncertainty is protracted.
4) The last factor is the continuous thrifting in the silver content of PV pastes and its impact.
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