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Silver up sharply on ratio punters' bets

Ratio trading in gold and silver prices is a trading tool. Ratio fell from 66.16 on Wednesday and was trading around the same level on Thursday when ratio punters started short covering in silver to t

Rajesh Bhayani  |  Mumbai 

saw a sharp short covering on Friday in Indian with prices shooting up smartly. This was because traders playing on the ratio of to price have seen the ratio peaking out.

Ratio trading in and prices is a trading tool. Ratio fell from 66.16 on Wednesday and was trading around the same level on Friday when ratio punters started short covering in silver to take the ratio to 62.74.

The gold-silver ratio represents how many ounce of silver you can buy with one ounce of Higher ratio suggests silver prices have fallen much faster against gold. On MCX, the leading exchange for trading in metals, open interest in silver fell on Friday to 16,314 lots from the previous day’s 19,641, indicating reduction in short positions.

Prices moved by nearly five per cent from the low of Rs 38,536 a kg to Rs 40,697 a kg. Even volumes also doubled to Rs 1.06 lakh crore against the June average of Rs 54,161 crore. Volumes in gold was also higher by 80 per cent, but open interest has not changed much.

In the international market, the silver price has seen a low of $18.22 an ounce from where it closed on Friday nearly eight per cent higher at $19.68, while gold rose from the low of $1,180 by five per cent to $1,235 an ounce.

Ajay Kedia, director, Kedia Commodities, said: “A sharp upmove in silver compared to gold has lifted the ratio from 66 to below 63, and technically, it can go to even 60 in near future, indicating silver may rise faster than gold, or if prices fall, silver will fall lesser than gold.”

In the last five years, the gold-silver prices ratio has seen sharp swings. It reached as high as 84.5 on October 10, 2008, while it fell to a low of 31.7 on April 28, 2011, from where it doubled to 66.16 last Wednesday.

In the physical market, profit booking by international investors in gold exchange-traded funds (ETFs) has been a major reason for the fall in gold prices, along with unwinding of positions by funds. However, silver fell sharply as industrial metals were also falling and silver has a big share of industrial demand also. Current rebound in silver is attributed to consolidation in metals in the international market.

Meanwhile, in Mumbai’s spot market, gold prices went up Rs 645 per 10 gram (2.57 per cent) to Rs 25,775 on Saturday, while silver rose 2.54 per cent to Rs 41,210 a kg.

Going forward, gold price is seen falling further. “With investors selling 550 tonnes of gold from physically-backed exchange-traded products since mid-February, this represents a huge shift from investment demand for gold to a new, and substantial, source of additional supply,” said Nic Brown, head of commodities research, Natixis.

“While these dynamics remain in place, gold prices will remain under pressure. Ultimately, a reduction in scrap supply and closure of unprofitable mines, alongside a rise in demand for jewellery will bring the market back into equilibrium, but there is the potential for a significant overshoot of this equilibrium point as long as investors remain net sellers, suggesting that prices can continue to fall,” Brown added.

First Published: Sat, June 29 2013. 21:53 IST