Macro Indicator: Gold-Silver Ratio

au.agThe relationship between gold and silver can be thought of as a metallic credit spread (hat tip to Bob Hoye for this phrase) not unlike for example, investment grade bonds vs. junk bonds. Not to equate silver with ‘junk’ status, but due to its more speculative nature than gold it will tend to rise in relation to gold in an environment of market liquidity and speculation.

When gold rises in relation to silver, the indication is often the opposite (risk ‘OFF’).

The message of the gold silver ratio can be applied to many markets outside of the precious metals in correctly gauging the macro environment for investment or risk management.