BLBG: Gold-Silver Ratio at Two-Month High as Risk Aversion Grows
May 5 (Bloomberg) -- The price ratio of gold to silver jumped to a two-month high on speculation sovereign debt risk in Europe is growing amid a slowdown in Chinese manufacturing, adding to concerns the global economic recovery may stall.
An ounce of gold bought 66.38 ounces of silver by 8:41 a.m. in Singapore, the highest amount since March 2, according to Bloomberg calculations.
Silver had outperformed gold this year through May 3, gaining 11 percent compared with the yellow metal’s 7.7 percent advance, on optimism demand for industrial metals will improve as the global economy rebounds from the worst recession since World War II. Gold for immediate delivery is now up 6.6 percent, while silver has pared its gains this year to 4.6 percent.
“All metals that have industrial uses should fall more than gold when people are worried about the economy,” Wallace Ng, the executive director of commodity derivatives at Fortis Nederland NV in Hong Kong. Silver is used in electronics and photography.
European governments are hoping the European Union and International Monetary Fund’s 110 billion-euro ($143 billion) bailout for Greece will stop a crisis that Nobel Prize-winning economist Joseph Stiglitz says threatens the currency’s survival. Investors are speculating that Spain and Portugal may also eventually need assistance. The euro fell below $1.30 yesterday for the first time since April 2009.
In China, a survey showed Chinese manufacturing expanded at the slowest pace in six months in April. Two days earlier, the People’s Bank of China said it will raise bank reserve requirements for the third time this year as part of efforts to rein in lending.
“The ratio will continue to go up as long as uncertainties exist in the market and people buy gold and sell everything else,” said Yang Zhenqiang, an analyst at First Futures Brokerage Co. “We’ll see some corrections along the way but I think $1,200 is a reasonable near-term target for gold.”
Gold dropped for a second day, losing 0.2 percent to $1,169.22 an ounce, while silver declined 1.1 percent to $17.6575 an ounce, extending yesterday’s 5 percent slump.
