Chart of the week: silver has some catching up to do

With gold costing around $1,300 an ounce and silver $17, it takes 76 ounces of silver to buy an ounce of gold. Yet the average value of the gold-silver ratio over the past century has been 40Gold/silver ratio

With gold costing around $1,300 an ounce and silver $17, it takes 76 ounces of silver to buy an ounce of gold. Yet the average value of the gold-silver ratio over the past century has been 40, says Myra Saefong in Barron’s. Silver is thus historically undervalued compared with gold, and looks overdue a catch-up. While it is a monetary metal like gold, 50% of demand stems from industry, notably buoyant areas such as smartphones and solar power. So the improving global economy bodes well for now, while a return of inflation could provide another boost to this volatile metal.

Viewpoint

“The US economy looked eerily similar in late 1965. The jobless rate had fallen to 4.2% – exactly where it is now – without a flicker of wage pressure. It was the calm before the storm… The US was on the cusp of the Great Inflation… we are now nine years into the expansion… The ratio of jobseekers to jobs on offer has dropped to historical lows. The US labour market is as tight as a drum… [The] danger… is that the Fed will wait too long, wagering that it can safely drive the jobless rate even lower in the benign circumstances of an apparently dormant Phillips Curve. This is what happened in 1965.” 

Ambrose Evans-Pritchard, The Daily Telegraph