Silver Price Has Not Responded To Gold - Yet

London (Oct 18)  Gold and silver have long histories as a means of exchange or hard money. The precious metals have been around a lot longer than the fiat currencies we use each day to pay bills, purchase goods, and save for the future. The dollar, euro, yen, and all of the other currencies of the world have short histories compared to the precious metals. Foreign exchange instruments are fiat currencies and only have the backing of the full faith and credit of the government's that print the bank notes.

Central banks tend to be very quiet about gold and silver. However, most monetary authorities around the globe hold significant gold reserves that are classified in the IMF statistics as foreign exchange reserves. While they rarely speak about gold, central banks are the world's biggest holders of the metal. Additionally, governments continue to be net buyers of gold with China and Russia leading the way to catch up with the U.S., Europe, and other countries when it comes to the percentage of gold holdings in their total foreign exchange reserves.

Gold is a currency, and in many ways, the yellow metal is the equivalent of bank notes. Silver has a role as the change that jingles in our pockets. My grandfather who passed in the early 1980s never called the quarters, dimes, nickels, and pennies in his pocket change; he referred to it as silver. Silver tends to move more than gold on a percentage basis. Recently, gold broke to the upside as the stock market began to correct, but silver has yet to display the same bullish price action as the yellow metal.

Gold breaks higher

There was no guaranty that gold would move higher when stocks began to fall during the week of October 8. In fact, the price of gold often moves lower during periods where stocks hit the skids and markets go into a protective or risk-off mode. However, gold powered higher and through the top end of its trading range that had been in place since late August.

SeekingAlpha