Gold:Silver Ratio to Shift with Europe Crisis

Source: Kitco, Allen Sykora (7/12/11)

"More pressure on gold in coming weeks as debt concerns, lack of industrial demand continues."

Kitco, Allen Sykora

Gold's recent outperformance against silver may continue for another several weeks to months as Europe's debt problems continue to fester, analysts say.

They attribute this in part to a greater tendency toward gold as a safe haven by large entities, funds and high-net-worth individuals during a time of crisis. Also, any economic fallout from the European debt saga could adversely affect industrial consumption of silver, which accounts for a far larger share of silver's overall demand than with gold.

The gold/silver ratio is calculated by dividing the price of an ounce of gold by the price of an ounce of silver. Analysts queried by Kitco News envision a move to the 45-50 area in the coming weeks. When the ratio rises, it signals a stronger performance by gold relative to silver, and vice-versa.

Gold has risen so far this week on the Comex division of the New York Mercantile Exchange, while silver fell. The environment has been one in which market participants have been seeking safety in gold—sending it to record highs in euro and British pound terms—while silver at times was caught up in "risk-off" liquidation with global equities and a number of other commodities, including base and platinum group metals.

During the last couple of weeks, much of the focus in financial markets was on Greece's debt problems, with Portugal entering the fray following a ratings downgrade. This week, there are worries about Italy and Spain as well, with yields for bonds of these countries rising.

When such crises occur, gold tends to be the most sought-after metal for a safe haven, said David Morgan, independent precious-metals analyst with Silver-Investor.com.

"That means there is more pressure for gold to go up than for silver to go up," he said.

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