Strategic trade
Trade view / 20 July 2016 at 12:25 GMT

Gold-silver ratio can break even lower

Managing Partner / Spotlight Group
United Kingdom
Instrument: XAUXAG
Price target:
Market price:

From April 4 to June 30 one could have been forgiven for believing that the path of the gold-silver ratio (GSR) (XAUXAG) was following its usual rotation inside an impulsive channel that had been in place since mid-September 2011.

In this period, the average GSR was 73.312, and the standard deviation (SD) was 3.727.
GSR Source: Spotlight Ideas

Since the end of June, the price of gold has risen 0.549%, while silver has outperformed by gaining an incredible 6.727%.

The GSR has fallen to 66.84, so the current GSR level is at 1.737 SD. That's getting close enough to two standard deviations for me to think a correction in the GSR may be close at hand.

The chart above shows that between January and June 2011 a similar decline was seen. But one must look at the magnitude. The top and bottom of the channel were marked on January 26, 2011 at 46.68 and March 20, 2011 at 40.01. The average was 43.248 and the SD was 2.880. The low point of the extension below the channel was on April 27, 2011 at 31.65; that was equal to the average less 4.03 SD. So it's not unreasonable to conceive that while expectations of a Fed rate rise this year are mounting, gold could loose some lustre for a while at least.

So I would open a small short on the GSR by buying silver and releasing some of my gold in the expectation that the GSR will decline to at least 2 SD on the range from April 4 to June 30 to target 65.85 at least.


Management and risk:

Parameters: Gold-silver ratio

Entry: Sell 66.84  at 12:24 BST (1124 GMT)

Targets: 65.85 ... 64.43 ... 62.89 ... 60.40

Stop: 73.30

Time horizon: Strategic trade

— Edited by John Acher

Non-independent investment research disclaimer applies. Read more


The Saxo Bank Group entities each provide execution-only service and access to permitting a person to view and/or use content available on or via the website is not intended to and does not change or expand on this. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on or as a result of the use of the Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. When trading through your contracting Saxo Bank Group entity will be the counterparty to any trading entered into by you. does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of ourtrading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws. Please read our disclaimers:
- Notification on Non-Independent Invetment Research
- Full disclaimer
- 沪ICP备13028953号-1

Check your inbox for a mail from us to fully activate your profile. No mail? Have us re-send your verification mail