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This year has been a strange year in Wall Street no matter how you look at it. But at least one strange dynamic between the prices of gold and silver actually has a somewhat simple explanation.The SPDR S&P 500 ETF Trust (NYSE: SPY) is down 10.8% year-to-date in 2020. So far this year, the SPDR Gold Trust (NYSE: GLD) has been a major market leader, gaining 11.6%. But at the same time, the iShares Silver Trust (NYSE: SLV) has been a significant laggard, dropping 16.9% on the year.In fact, the ratio of gold-to-silver prices is currently around 116, its highest level in history dating back to ancient times, according to DataTrek Research co-founder Nicholas Colas.History Lesson For hundreds of years, the ratio of gold-to-silver prices ranged from around 15 to around 20 up to the point the U.S. came off the gold standard in the 1970s. Since that time, the ratio has spiked significantly above 40 several times. Colas said these spikes have typically occurred during periods of economic and/or geopolitical instability.While it may seem strange for gold and silver prices to be heading in opposite directions, Colas said the key to the strange dynamic lies in the demand drivers for both metals. Industrial demand accounted for about 51% of silver demand in 2019 and only 9% of gold demand. At the same time, gold demand is driven much more by investors, who see the metal as a flight-to-safety trade during times of market turmoil and periods in which investors are fearful of inflation.Given industrial demand has plummeted due to coronavirus (COVID-19) shutdowns and investor demand for gold has jumped due to concerns about the global economy, Colas said it makes perfect sense why the prices of the two metals are heading in opposite directions.”Silver prices won’t recover until the global economy and industrial production do, so the gold/silver ratio at all-time highs makes sense,” he said.Benzinga’s Take For investors who believe the worst of the COVID-19 crisis is now passed and an economic recovery is imminent, the high gold-to-silver ratio could present an interesting pair trade opportunity.Traders who anticipate the gold-to-silver ratio will ultimately regress toward its long-term average could consider buying the SLV fund and shorting the GLD fund.Do you agree with this take? Email feedback@benzinga.com with your thoughts.Related Links:7 ETFs To Buy In A Recession 7 Ways To Invest In Gold Amid Coronavirus FearsLatest Ratings for GLD DateFirmActionFromTo Apr 2013Oracle Investment ResearchInitiates Coverage onStrong Buy Apr 2013Oracle Investment ResearchInitiates Coverage onStrong Buy View More Analyst Ratings for GLD View the Latest Analyst RatingsSee more from Benzinga * 7 Best-Performing Stocks Of 2020: Buy, Sell Or Hold? * Bitcoin Is Still Failing As A Flight To Safety Investment(C) 2020 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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“The Bank of Nova Scotia (BNS) is listed as one of 12 market-making members of 143 total of the London Bullion Market Association. No longer. The bank is closing its metals trading desk, shutting it down entirely. Not selling it or otherwise offloading it, just simply ending it. It will be very interesting to see the bank’s next earnings report on May 26 to see how much losses it suffered in the gold futures market this quarter. Something tells me the losses will be quite large. Otherwise, the bank wouldn’t be scrapping the entire operation without getting a penny for it.”
“So now we’re in a situation where if something very drastic is not done and done quickly to get money into the hands of everybody, we’re going to go into a massive deflation, maybe even a dirty 1930-style depression. This is my opinion; I think they’re going to do the much-heralded helicopter drop of money. There’s been talk about debt jubilees. I think we’re going to see a situation where the broad economy is simply flooded with liquidity. And that is going to have profound implications for inflation going forward.”
