LME is a spread trader's wet dream. I don't have many clients that have access to it, but those that do and actively trade it seem to do well.
Aluminum and copper have a lot of spread trading potential. But they're not in the precious metals category.
Zinc, Copper, Lead... the entire industrial metals complex has strong fundamental inter market relationships and forward curve supply dynamics that make for great inter and intra market spread trade opportunities. IMO, if the precious metals spreads stick, then the industrial metals suite might follow... who knows?
Bone, I nominate you for the next open position on the CME Board of Directors. More power to the spread traders!
I've always thought the spread expresses the difference between "real growth" via the industrial metal silver and "monetary growth" via Gold. No, I don't expect the pair to be cointegrated and there is no reason it should be. I think this is more of a long term macro trade then a mean reversion trade one would be in and out of. Also I'm sure the bid/ask spread will be stupid anyway which also will not make for an attractive active scalping spread. It might offer a smoother ride then holding a naked ES long in long risk market environments.
I would trade these precious metals spreads for long term convergence or divergence - no freaking way for mean reversion in the traditional sense of the term as modeled against previous trading ranges. When these go they really go; best not to be on the receiving end of the pain.
I have a client who works the order desk for a Major IB - lots of fund and commercial interest lining up for this offing.
So how big is the notional value of this contract? The volatility of the GC/SI spread likely exceeds that of each leg and will have some extreme days. It trends ,or ranges big , as others have said , I would guess. Deflation, long USD , decent Eco data , rate hike odds increasing is sell GC/SI and vice versa. Seems there are simpler ways to express that rather than using a spread that increases leverage and risk. Will margin on the spread be less than margin for each leg? That does not make sense. This is just my opinion from the retail cheap seats on a gold/silver spread.