The gold silver ratio
Key ratio for gold & silver investing
The gold silver ratio is a historical measure comparing gold prices to silver prices to assess the value of one monetary metal against the other. Historical gold prices and current gold prices are compared to the same data points in the silver price to create this key ratio for precious metals investing.
The gold silver ratio is used as a barometer to judge if at any one time physical gold, or silver bullion, is over or undervalued, compared to the other. Some traders use the gold silver ratio as a signal to buy silver and trade around moves in this indicator. Others use it to allocate more heavily to physical gold investment, at times where silver might be relatively overvalued.
A high gold silver ratio means that gold’s purchasing power is relatively high at that moment when compared to silver, with high current gold prices exhibiting themselves. A low gold silver ratio means that silver’s purchasing power is relatively high at that moment compared to gold, with significant strength in the current silver price.
The gold silver ratio has oscillated from long term historical averages of close to 15 to 1, to highs of 100 to 1 in the 1990s. Notably after the Great Financial Crisis of 2008 the ratio hit 80 to 1, as precious metal investors rushed to the safety of allocated gold bullion at the expense of silver bars.
At the beginning of 2014 the gold silver ratio hovered around the 60 – 63 to 1 level, but some commentators see relatively larger silver investment demand driving this ratio lower over the long term and down to the 15 to 1 level. Other investors see things differently, finding wider, contemporary differences in gold prices and silver prices as here to stay and the old 15 to 1 ratio merely representing a historical footnote.
However, whilst the ratio between the latest gold price and the latest silver price can tell us some interesting things within precious metals investing, this ratio tends to be most used and referred to by professional traders, compared to individual investors who find it an interesting measuring stick but tend to rely on it less heavily in their saving and investing.