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Silver Price Hits $21, Up 80% in 18 Weeks from Covid Crash to Crush Gold/Silver Ratio Below 90

SILVER PRICES leapt in Asian and London trade Tuesday, surging to new 4-year highs in US Dollar and Euro terms and reaching 2013 levels for UK Pound investors as gold also rose, touching 9-year Dollar highs barely $80 per ounce beneath the all-time peak of September 2011.
 
Gold has added that much already this month.
 
Silver priced in the US Dollar jumped to $21.03 per ounce in London spot trade, just 13 cents shy of the peak in June 2016 when precious metals briefly surged on the UK's shock Brexit referendum result.
 
With gold rising to $1838 per ounce – its highest since mid-September 2011, the week after its current all-time Dollar high – today's jump in live silver prices squashed the Gold/Silver Ratio down below 90 for the first time since 24 February.
 
The Gold/Silver Ratio is a simple measure of the two formerly monetary metals against each other. Averaging 56.7 over the last half-century, it shows how much 1 ounce of gold is worth in ounces of silver.
 
Sinking from 93.1 on Monday to below 87.7 this morning, the Gold/Silver Ratio would stand at 19 if it reflected silver's geological abundance compared to gold's in the earth's crust, or just 8 if it reflected current levels of global mining output by weight.
 
Peaking at 100 in the global economic recession of 1991, the ratio shot through that level this March, topping at 125 ounces of silver per 1 ounce of gold when the Coronavirus shutdowns of global economic activity saw the gray metal – which finds over half its end-demand from silver's industrial uses, against less than 1/10th for gold – plummet to the cheapest since 2009, down below $12 per ounce.
 
Chart of Gold/Silver Ratio, London daily benchmarks. Source: BullionVault via LBMA
 
"Like Cinderella," says Rhona O'Connell at StoneX, the commodities, bullion and equity brokers, "silver can remain 'below stairs' for months at a time. But when it comes to life it does so with a vengeance, and like Cinderella, arrives at the party in a blaze of glory."
 
Global stock markets also rose Tuesday, taking the MSCI World Index within 4% of February's pre-Covid Crash record, even as longer-term interest rates ticked higher in the bond market.
 
Annual yields offered to new buyers of 10-year US Treasury bonds rose to 0.62% as the price of Washington's debt price edged lower.  
 
That yield marked a new all-time low when first reached in March's Covid Crash across equity and commodity markets.
 
But inflation expectations rose faster than bond yields today, reaching 1.49% per annum on market-inferred 10-year breakeven rates.
 
Together, that put the real rate of interest on 10-year US bonds at minus 0.87%, matching the previous record low of 10 December 2012.
 
Chart 10-year US Treasury bond yields vs. 10-year breakeven inflation expectations. Source: St.Louis Fed
 
"I think we're probably due a second round of investor panic," said a senior investment advisor to hedge funds, pension trustees and other large money managers in a private call with BullionVault on Tuesday.
 
"Equity investors are currently like deer caught in the headlights, fearing they'll miss out on yet more gains if they sell to take profits.
 
"But lots of [economic] sectors are going to see hysteresis, the Covid Crisis will cause permanent damage. To try and protect them, central banks want to see another leg down in real rates, making debt cheaper to service and renew."
 
Data from the end of Monday's US trade showed the giant SPDR Gold Trust (NYSEArca: GLD) expanded by 0.4% on net investment inflows yesterday, leading the world's largest gold-backed ETF product to need almost 1,212 tonnes of bullion to support its value, the most since start-April 2013.
 
The iShares Silver Trust (NYSEArca: SLV) meantime swelled by 0.7%, needing an additional 119 tonnes of bullion at a new record 16,379 – yet another all-time record, equal to 2/3rds of this year's projected world mining output.
 
"Silver ETF holders are more retail [ie, private investors] than gold, and tend to hold on for longer," says O'Connell.
 
"In addition, there are logistical problems in the market, with North American refiners flat out and fully booked, partly because it is taking eight to ten weeks to get material from Europe into New York.
 
"That said, the short-term price chart shows how viciously silver can fall.  Cinderella may be at the ball, but when she leaves, it will be as quickly and unexpectedly as her arrival."
 
Meantime, last week's 2.0% gain in silver prices already showed how "momentum can increase exponentially," says one London bullion trading desk, "especially as the flow of business is unhindered by [mining] producers selling...something which has already happened in the past few weeks, when natural sellers came and hedged volumes of future production at around $18.50 per ounce."
 
On the political front, leaders of the 27 nations in the European Union overnight agreed a €750bn post-Covid recovery and stimulus package, with some funds raised by joint EU bonds but half now needing to be repaid by member states in the future.
 
The UK Parliament's Intelligence and Security Committee meantime said the Conservative Government "actively avoided" investigating Russian interference in the 2016 Brexit referendum, a finding termed "Russophobia" by Moscow as UK Prime Minister Boris Johnson's office denied it had "badly underestimated" the threat posed by foreign financing of social media adverts.
 
Shares in drugs research firm Synairgen (LON: SNG), allied to the University of Oxford and working with pharma giant Astrazeneca (LON: AZN), meantime extended their jump, now up 5-fold in 3 trading days, after reporting promising results from its phase 2 trial of a possible treatment for Covid-19.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

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