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Trading Gold Versus Silver

David Becker
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Trading Gold Versus Silver

As prices of precious metals prices consolidate after slumping near 8% over the past two weeks, traders who believe prices could continue to slide could take a market neutral gold versus silver position. This position attempt to generate gains by selling gold (or buying) and buying silver (or selling). Currently the ratio between the two commodities is trading near $65 dollars per ounce, which is on the upper end of the 5-year range.

The range of gold spot versus silver spot has been as high at $70 per ounce, which it hit in the summer of 2010. Of late, the spread has touched the $67 per ounce level in July of 2013. The low in the spread price over the past 5-years is $32 which was reached in April of 2011.

Setting the extreme levels aside, the 1-year moving average of the spread of gold versus silver is $62 per ounce and the 5-year moving average is $56 per ounce.

Gold is more liquid than silver and the position sizes in both the futures and cash markets make it the benchmark for precious metals. Gold will likely take the brunt of precious metals liquidation as traders leave gold and silver. For traders looking to take advantage of this trade, selling gold and buying silver makes sense given the current elevated levels of the ratio.

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