The gold-silver ratio narrows, providing boosts to companies like Fresnillo and

Silver is set to outperform gold in relative terms, according to analysis from Citi

The recent surge in the silver price to above US$20 an ounce has pushed the gold-silver ratio back towards a much more sustainable level and away from the record peak of 124 in March this year.

The gold-silver ratio is used by traders to measure the values of gold and silver relative to each other, and it’s generally reckoned that if the price of one metal moves without the other and the ratio between the prices widens, it’s only a matter of time before it narrows again, either because the metal that hasn’t moved has caught up, or the original mover has returned to its former level.

Perhaps not surprisingly, gold almost always leads the way in setting the level of the ratio, and it has done in the most recent bout of frenetic activity on the precious metals market, as it’s soared away in recent months to multi-year US dollar highs.

Silver lagged for a while, but has now closed the gap from 124 to closer to 93 now, according to analysis from Citi.

What’s more, the relative strengthening of the silver price in comparison to gold looks set to continue, according to the Citi analysts.

“We continue to target a 75-85x gold-silver price ratio range over the next 6-18 months,” Citi wrote in commentary on Tuesday morning, “with a terminal value closer to around 80 times. While both gold and silver prices are expected to keep rallying, the silver market seems poised to outperform gold on improving market inflation expectations, a rebound in industrial activity (e.g., PMIs), and a recovery in EMFX.”

That in turn bodes well for companies that predominantly produce silver, like Fresnillo (), or companies that have significant silver components to their exploration efforts, like Alien Metals ().

This week Citi upgraded Fresnillo from hold to buy, setting a price target of 1,250p, while Alien is rated a buy by analysts at First Equity. First Equity said it was “surprising” that the Alien share price hadn’t reacted to the upward move in silver, leaving open the possibility that a delayed reaction re-rating might be on the cards.