Will Oversold Silver Outperform Gold? Ratio Analysis

Silver has corrected almost twice as much as gold from their all-time-highs. Judging by the silver to gold ratio, some analysts believe silver will outperform gold. http://DailySilverUpdate.com

Gold and silver have experienced a sharp selloff over the past few years. Going forward, some analysts and traders are speculating that silver has the potential to outperform gold or at least hold up better than the yellow metal.

Peter Hug, global trading director with Kitco Metals, said silver may have become “grossly oversold” and that he favours a short gold/long silver trade with an initial target in the ratio of 66 to 1.

Gold potentially could drop further, Hug said. “Obviously, that will drag down silver and platinum with it, but I do not believe to the same extent,” he said. With the European Central Bank recently announcing plans for quantitative easing and Chinese authorities adding more stimulus, Hug said the global economy may not be stellar but yet improve enough, which means increased industrial demand. More than half of silver consumption is for industrial use, whereas this only accounts for a small percentage of overall gold demand.

“From an industrial perspective, and even from an investment perspective, silver at these prices I think will garner more demand than gold and tighten this ratio up,” Hug said.

In addition, veteran precious-metals strategist George Gero of RBC Capital Markets Global Futures is also expecting silver to hold up better relative to gold with the ratio eventually moving back into the 50s.

“I think as time goes by and you see an economic recovery in Europe and a recovery in China, and with a recovery attempt here, next year could be a different story for silver,” Gero said. This would presumably mean more industrial demand for silver, he continued.
“As long as gold maintains its present value, silver will catch up to gold,” Gero said.
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