Gold and silver are safe haven currencies with resonance in the long cycle. In the face of risk events, the volatility of gold is smaller than that of silver, but after the risk events subside, gold can maintain a limited degree of retreat, while silver tends to fall more than expected.

As the supply and demand fundamentals of gold and silver are different, the quotation bases of the two are also different. The core formula of gold and silver price arbitrage analysis is to divide the price of gold by the price of silver, and then observe the operation law of the result curve. Due to the similarity of gold and silver in risk aversion properties, we expect the price ratio of the two to be within a certain normal range. If, for some reason, the price ratio of gold and silver deviates from the normal range, there will be arbitrage opportunities.

The basic trading principle is: the price ratio of gold and silver is higher than the normal value, which means that the price of gold is too high or the price of silver is too low. At this time, the "convergence" strategy of buying silver and selling gold can be adopted; The price ratio of gold and silver is lower than the normal value, which means that the price of gold is too low or the price of silver is too high. At this time, the "divergence" strategy of selling silver and buying gold can be adopted.

The above figure shows the price comparison curve of gold and silver. The statistical period is from 2011 to early 2021, and the time interval of each data is one year. It can be seen that the maximum specific price of gold and silver is 86.18, which occurred in 2019; The minimum value is 55.23, which occurred in 2012.

If the divergent arbitrage strategy is adopted, the holding time is 7 years. Seven years is very long-term for ordinary traders and may not have practical significance. However, a long cycle means greater profits. In 2012, gold was quoted at US $1675 and silver at US $30; In 2019, gold is quoted at $1470 and silver at $17. 12.23% of the total loss of gold per ounce and 43.33% of the total profit of blank silver per ounce, with a net profit margin of 31.1%.

It seems not much to win 31.1% of the total income in seven years, but this is achieved without any leverage. Under the basic leverage of 50 times, the total return in seven years will expand to 1555%, which is very amazing. In addition, there is a hedging mechanism in arbitrage trading. The decline of gold will be hedged by the rise of silver, and the decline of silver will be hedged by the rise of gold. Even if the leverage is higher than 50 times, its net risk is far lower than that of trend trading.

Since the curve in the figure is the data obtained on an annual basis, it can only describe the general trend of gold and silver prices since 2011. If the time interval of data points is adjusted to monthly, the highest gold and silver price and the lowest gold and silver price in history will change to a certain extent. For example, the highest price parity in 2019 is 86.18 in the data points based on year; But if it is put into the data points in monthly units, it will increase to about 100.

Although the monthly data is more accurate than the annual data, it is worse than the daily data. The same principle applies to the daily line versus the hour line, the hour line versus the minute line, and the minute line versus each price point. We cannot force traders to put all the data points into excel tables and draw their own graphs, which is too difficult and prone to error. For the convenience of traders, we have shown the trend chart of gold and silver price comparison under all price points in the past 30 years.

It can be seen that the lowest point of the gold and silver price ratio was formed on May 1st, 2011, not in 2012, and its lowest point was 31.78, nor 55.23; Similarly, the accurate time for the formation of the highest point is March 27, 2020, not 2019, and its highest point is 119.896, not 86.18 under rough calculation. After obtaining more accurate data, the high and low points are extended, and the arbitrage gains are greater.

The figure above shows the price comparison curve of all gold and silver prices in history. It can be seen that the normalized ratio range is around 60, which is the red box in the figure.

When the price comparison curve is higher than the interval and reaches around 100, a convergent arbitrage strategy is formed; When the price comparison curve is lower than this range and reaches around 40, a diffusion arbitrage strategy is formed. Of course, if you have enough patience, you can wait until the high point is above 100, or the low point is below 40, but there are few such greater arbitrage opportunities.

The above is our basic research on the price comparison of gold and silver. Thank you for reading.