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Summary

  • Silver’s weakness coincided with the recovery of U.S. equities.
  • Silver to gold ratio rallied in recent weeks.
  • The upcoming U.S. non-farm payroll report could impact silver.

Silver's downward trend reached an impasse last week. Let's examine the relation between silver and U.S. equities and gold. Also, will the upcoming non-farm payroll report adversely impact the price of silver?

Last week, silver inched up 0.2%. The silver ETF, iShares Silver Trust (NYSEARCA:SLV), also edged up by 0.1%. Moreover, companies, including Silver Wheaton (NYSE:SLW) and Pan American Silver (NASDAQ:PAAS), also slightly recovered by 0.4% and 1.9%, respectively.

U.S. labor market and silver

This coming Friday, the U.S. non-farm payroll report will be released. In the previous report, 209,000 jobs were added in July, which was slightly below market expectation. As a result, the USD and silver didn't move much on the day of the report's release, as presented in the table below.

(click to enlarge)

Source of data: Bloomberg and U.S Bureau of Labor Statistics

Usually, if the report shows a high growth in jobs and beats market expectations, the USD tends to rally and silver tends to fall. Moreover, the correlation between the changes in jobs from expectations and price of silver is -0.33, which is a mid-strong linear correlation. Thus, if the upcoming report shows a higher gain in jobs than the current projections of 222,000 jobs, then silver may resume its downward trend.

S&P 500 and silver

In the meantime, the U.S. economy shows signs of progress. The second-quarter GDP was revised up from 4% to 4.2%. This may have contributed to the rally of the USD against leading currencies during last week. Also, the U.S. equities markets continue to recover as the S&P 500 index reached the symbolic mark of 2,000 points. Due to this rally, the ratio between the S&P 500 index and the price of silver also increased in the past few months.

Source of data: Bloomberg and Google finance

This chart indicates how the S&P 500 is outperforming silver and if this trend persists, this could suggest more investors are steering away from silver and into equities.

Gold to silver ratio is rising

Despite the appreciation of the USD, gold remained relatively stable in the past month.

(click to enlarge)

Source of data: Bloomberg

Therefore, the gold to silver ratio climbed to its highest level since the end of May. This comes after silver has outperformed gold during June and July. The ratio has shifted between 60 and 67 in the past year.

Takeaway

Silver may resume its downward trend in the near term, but the price isn't likely tumble down anytime soon.

Source: Will Silver Resume Its Descent?