What is the Gold Silver Ratio?
The gold silver ratio refers to the relationship between the price of gold and silver. It is calculated by dividing the spot price of gold by the spot price of silver. For example, if gold is $1,800 per troy ounce and silver is $20 per troy ounce, the ratio would be 90:1.
The ratio compares the value of an ounce of gold to an ounce of silver. A higher ratio means it takes more ounces of silver to equal one ounce of gold.
History
The gold silver ratio has varied greatly over history. In ancient times, it was set by governments at a fixed rate. The average in the 20th century was around 47:1. Recently, the ratio has ranged from 50:1 to over 100:1.
The gold silver ratio tends to expand when economic uncertainty rises as investors flee to gold's relative safety. The ratio declines when confidence improves.
Uses
Investors use the gold silver ratio to help identify potential opportunities. When the ratio reaches an extreme, it can indicate one metal is undervalued compared to the other.
For example, if the ratio rises to 90:1, silver may be underpriced compared to gold based on historical norms. An investor might choose to buy more silver in anticipation the ratio will revert back towards the mean.
The gold silver ratio refers to the relationship between the price of gold and silver. It is calculated by dividing the spot price of gold by the spot price of silver.
Trading the Ratio
Savvy precious metal investors look to trade the gold silver ratio - exchanging gold for silver when the ratio is high, or vice versa. This aims to gain more ounces of the relatively undervalued metal.
For example, at a 90:1 ratio, one could exchange 90 ounces of silver for 1 ounce of gold. If the ratio later dropped to 60:1, that 1 ounce of gold could then be swapped for 60 ounces of silver, netting a gain of 30 ounces of silver.
Forces Affecting Ratio
Supply and demand factors influence the gold silver ratio. New silver supplies coming online can cause the ratio to rise. Economic shifts can alter demand for safe haven gold versus industrial silver. Government policies also impact monetary values.
In addition, technical trading factors often drive short term movements in the ratio.
Current Status
In 2022 and early 2023, the gold silver ratio averaged around 80:1, though it remains volatile. This indicates silver continues trading at historically high valuation compared to gold. Many analysts expect the ratio to normalise back down towards 60:1 or lower in coming years.
Conclusion
The gold silver ratio has long provided useful insight into the relative values of these interconnected precious metals. Investors utilise the ratio to value each metal and strategically trade between them when imbalances arise. Tracking the ratio remains an important tool for precious metals investors and analysts.
