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Gold-silver price ratio to keep falling as ‘undervalued’ silver outperforms

With silver seemingly “undervalued” and the reopening of economies expected to boost industrial demand, traders are looking for the gold-silver ratio to continue its decline as silver continues its recent outperformance.

The view is not unanimous, however, as some traders worry that renewed trade tensions between the U.S. and China could dent industrial demand for silver.

The gold-silver ratio measures how many ounces of silver it takes to buy an ounce of gold, with a rising number meaning an underperformance by silver compared to gold, and vice-versa. Back in March, the ratio rose as high as 127.

However, just before noon Thursday, the ratio was just under 102 and it was even lower earlier this week. Spot gold was trading at $1,718 an ounce, while silver was at $16.86.

“If I came into these markets and I open up an account with an intention of putting on [a long position in] gold, and then looked at the price of silver, I would buy silver,” said Bob Haberkorn, senior commodities broker with RJO Futures, predicting the metal will hit $20 in a few weeks. “People who were looking to trade gold are now going to turn their head to silver.”

Charlie Nedoss, senior market strategist with LaSalle Futures Group, said the relationship between gold and silver “has been out of line for some time.” Earlier this week, Commerzbank analysts commented that the ratio peaked at 85 during the 2008 financial crisis and that the longer-term average was in the 60s.

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