It’s a well-known fact that Gold and Silver is highly correlated, both metals share a positive correlation with each other. (Means both move in same direction most of the time) But there are some times when correlation breakdown due to several factors such as seasonal tendencies, Volatility, Government intervention, Liquidity problems etc. Such types of Price Difference offer good opportunity for arbitrage Pair trading. Pair trading is a form of arbitrage technique that relies on strong correlation between two assets, when the correlation fails it seeks to take advantage of it.
Correlation Breakdown-Price action of Gold and Silver
When we see the charts, we can clearly see that Gold Making higher highs and Silver making lower lows. This correlation breakdown is taking place on Weekly chart, since April 2016. Gold is trading around 1200$ and Silver is trading near 16.00$ respectively. These two instruments can offer Intermarket trading opportunities. If you’re unaware of Intermarket analysis, have a look at it. Traders should watch the Price action and take trades according to Market bias. Preferably it’s better to play this on lower time frame.
