Silver and Platinum Have Snapped Their Traditional Gold Bond (SLV, GLD, PPLT, IAU, SGOL)
Jonathan Yates: Silver (NYSEARCA:SLV) is trading far below its traditional investing correlationship with gold (NYSEARCA:GLD), as is platinum (NYSEARCA:PPLT).
The co-relationship between gold and silver should be 16-1. And platinum should be priced higher than the yellow metal.
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At present, both commodities are trading much lower than the historical price ratios due to heavy demand for hard assets – particularly in India and China — drives up the price of gold and the global economic slowdown keeps both silver and platinum on a tight leash.
The exchange-traded fund for gold, SPDR Gold Shares (NYSEARCA:GLD), is up about 15% for the year. The primary silver ETF, iShares Silver Trust (NYSEARCA:SLV), is lower by more than 5% year to date. ETFS Physical Platinum Shares (NYSEARCA:PPLT), the primary ETF for platinum, is off almost 20% for 2011.
This evinces the speculative demand for gold while both platinum and silver have much greater industrial usage. Over 90% of gold (NYSEARCA:IAU) is for investment purposes only.
If the 16-1 correlation between gold and silver were holding, silver would be at $100 an ounce rather than around $30. Or, on the other hand, gold would be closer to $500 an ounce, rather than $1600.
At present, there is a 3.89% short float for GLD. The short float for SLV is 6.90%.
GLD, PPLT and SLV are all up for the week. If the U.S. dolar and other currencies weaken, gold, silver and platinum should rebound in price as investors flee fiat currencies.
Written By Jonathan Yates From Emerging Money
Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.
I don’t think there will be any movement on this ratio until the year is out. Whether silver rises spectacularly in 2012 or gold consolidates a little is still to be seen.