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The Gold Versus Silver ratio is at its lowest in 10 years, based on the fact that Silver is largely correlated to gold – albeit much more volatile. Is there an argument for buying into this as a pairs trade?
When silver is on a roll, it is best to stay out of its way.
The metal has a habit of churning around aimlessly for a long time until prices march resolutely northwards.
Has silver reached the climactic end? I’m not so sure.
To bet on the spread narrowing (long gold; short silver) is a bet on gold outperforming silver.
This may well happen in the future.
But in the meantime, one may need to guard against a further widening of the spread.
The relative trade could sink into a loss first before recovering. This consideration needs to be ironed out before initiating the spread trade.
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