SILVER PRICES hit new 6-year lows in London trade Monday, dropping to $13.65 per ounce and falling near 2009 lows against steadier gold prices as industrial commodities sank and Western stock markets fell again ahead of this week’s decision on Dollar interest rates from the US Federal Reserve.
With gold bullion trading above $1070 per ounce mid-afternoon, the Gold/Silver Ratio of relative prices rose above 77.7 – a multi-decade high when seen during the oil price crash of the mid-1980s.
“The aftermath [of the Fed’s rate hike] has already begun,” says a credit markets note from French investment and bullion bank Natixis.
Following the closure last week of a $795 million ‘junk bond’ mutual fund, trading volumes in the largest exchange-traded fund product holding ‘sub-investment grade’ bonds blew out Friday to $4.3 billion – three times the heaviest 1-day volume in any corporate bond ETF, according to Bloomberg.
One-year US Treasury bond yields today hit their highest level since March 2009 at 0.69%, while broad commodity indexes fell another 1% on top of Friday’s 2% slump.
Nymex natural gas contracts lost almost 6% for the day. US crude oil sank near an 11-year low beneath $35 per barrel.
“The gold-silver ratio made huge strides higher” on Friday, said a technical analysis from bullion bank Scotia Mocatta late Friday, setting its next target “at the September high of 77.74 followed by the 2015 and multi-year high of 80.”
Based on the wholesale market’s daily benchmark London pricing, gold today hit its highest valuation over silver since start-October’s near 6-year highs above 79.
The Gold/Silver Ratio has averaged 54.2 since the collapse of fixed gold pricing in 1968.
The ratio peaked at 101 ounces of silver per 1 ounce of gold in February 1991, and hit its lowest level in more than 3 decades – with silver more highly valued against gold – at 31.5 in April 2011.
“$13.80 remains a key [level]” for silver prices, said a technical chart analysis from French investment and bullion bank Societe Generale lastweek.
“A sustained move below will mean a deeper downtrend.”
For gold, in contrast, “Short term a rebound is taking shape and a test of $1100-1105…is likely.”
Data released by US regulator the CFTC after Friday’s market close showed the number of bullish speculators in US gold futures and options jumped last week to exceed the number of bearish traders by the widest margin in a month.
But overall, the ‘spec net long’ betting (of bullish minus bearish contracts) remained near the lowest since end-2002, down below 30% of the last 20 years’ average.
Silver traders, in contrast, last week held a net spec long equal to 78% of the last 20 years’ average.
Investors in silver-backed ETF products also grew their exposure, raising the amount of stock issued by the giant iShares Silver Trust (NYSEArca:SLV) to its highest level since the start of September, and needing some 10,062 tonnes of physical bullion as backing.
The biggest gold ETF product on the other hand lost another 4 tonnes last week, ending Friday with 634 tonnes needed to back shares in the SPDR Gold Trust (NYSEArca:GLD) – the world’s largest exchange-traded fund by value at its summer 2011 peak.