A Historical Guide to the Gold-Silver Ratio
It is important to state that this is a historical observation of past performance and not an indication or suggestion that this pattern will repeat. The dynamics behind this recurring pattern are partly rooted in silver’s dual nature as both a monetary and industrial metal, as well as the relative size of its market compared to gold. “The gold/silver ratio should be viewed as one indicator within a broader analytical framework,” cautions Dr. Elaine Wong, metals analyst at Commodity Research Partners. “It’s just shy of a hundred to one, so 100 ounces of silver to one ounce of gold,” says Barone. As the gold cost hovers around $3,200 and the price of silver clocks in at around $32, the gold-silver ratio is generally high at the moment.
What Is the Gold/Silver Ratio?
The gold-silver ratio is affected by economic factors such as crude oil prices, stock market hugo fx forex broker performance, global currency valuations and Treasury yields. These factors can impact the perceived value of gold and silver and, in turn, affect their ratio. In short, like any other strategy, trading the gold-silver ratio comes with risk, and it should be used carefully.
Many observers view this event as the moment when the U.S. dollar became a de-facto fiat currency, after which the role of governments in setting the price of gold and silver steadily declined. There’s an entire world of investing permutations available to the gold-silver ratio trader. What’s most important is that the investor knows their own trading personality and risk profile. For the hard-asset investor concerned with the ongoing value of their nation’s fiat currency, the gold-silver ratio trade offers the security of knowing, at the very least, that they always possess the metal. The difficulty with the trade is correctly identifying the extreme relative valuations between the metals. For example, if the ratio hits 100 and an investor sells gold for silver, and the ratio continues to expand—hovering for the next five years between 120 and 150—then the investor is stuck.
What are the limitations of using the gold-silver ratio?
Even early 2020’s new record high in gold open interest has taken it only to 109%. Because of the silver market’s size and volatility, speculative trading in the grey metal is much heavier than gold, relative to the physical market’s underlying value. When the Gold/Silver Ratio rises, it means that gold has become more expensive compared to silver, and the cheaper metal might offer better value. It hit a new all-time high above 125 in March 2020 when the Covid Crisis saw gold investing jump but crushed the silver price, along with most other industrial commodities, as world economies went into lockdown. If they can anticipate where the ratio is going to move, investors can make a profit even if the price of the two metals falls or rises. Silver recently reached a 13-year high, trading above $36 per ounce, driven by strong industrial demand and a weakening U.S. dollar.
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In 1913, the Federal Reserve was required to hold gold equal to 40 percent of the value of the currency it had issued. A significant change occurred in 1933, when President Franklin D. Roosevelt suspended the gold standard to stem redemptions of gold from the Fed. This, along with other measures, weakened the link between the dollar’s value and gold.
The gold silver ratio represents how many ounces of silver it would take to equal the spot price of one ounce of gold. Switching between gold and silver is a common investing strategy – and it can work extremely well. The gold silver ratio can be a fantastic tool for investors who want to strategically swap between the two precious metals.
A new trading precedent has apparently been set, and to trade back into gold during that period would mean a contraction in the investor’s metal holdings. It is not recommended that this trade be executed with physical gold for a number of reasons. You can buy and hold physical gold and silver for long-term investment purposes, but it is very difficult and expensive to trade in and out of these metals in this way. Options strategies in gold and silver are also available for investors, many of which involve a sort of spreading. For example, you can purchase puts on gold and calls on silver when the ratio is high, and the opposite when the ratio is low.
Pell sequences
- Despite not having a fixed ratio, the gold-silver ratio is still a popular tool for precious metals traders.
- Because gold and silver prices change based on the law of supply and demand, the gold/silver ratio has fluctuated over time.
- Changes in the ratio have clearly reflected these factors since the start of the 21st century, resulting in a dramatic increase in the gold-silver ratio’s volatility.
- This, along with other measures, weakened the link between the dollar’s value and gold.
Likewise, extraordinarily low gold silver ratios may trigger a silver sell-off as investors put their money into undervalued gold. Despite not having a fixed ratio, the gold-silver ratio is still a popular tool for precious metals traders. They can, and still do, use it to hedge their bets in both metals—taking a long position in one while keeping a short position in the other metal.
Why Does This Pattern Occur in Precious Metals Markets?
Over the past quarter-century, five distinct episodes demonstrate the relationship between elevated gold/silver ratios and subsequent silver price performance. These cases provide compelling evidence of the ratio’s potential as a market timing indicator. “Silver operates at the fascinating intersection of precious metal investment and industrial commodity,” explains Dr. Maria Chen, commodities economist at Global Resource Analytics. “This duality explains much of its price behavior relative to gold during different economic phases.” “It’s how many ounces of silver at the current price it takes to buy one ounce of gold,” says Joshua Barone, wealth manager at Savvy Advisors. Throughout the past year, the price of gold has seen a momentous increase, shattering several records.
- The gold-silver ratio is calculated by dividing the current price of gold by the current price of silver.
- If you’re managing your own portfolios, monitoring the GSR can signal strategic opportunities to buy or sell, making it a useful tool for timing precious metal trades.
- To find the gold silver ratio, just divide the current spot price of gold by the current spot price of silver.
- It represents how many ounces of silver are needed to purchase one ounce of gold.
- You can identify these trends by using technical indicators, the most common of which are simple moving averages.
So most of the gold ever mined in history still exists in someone’s hands somewhere. The Silver Institute projects a significant supply deficit for silver in 2025, with industrial fabrication expected to grow by 3%, particularly in renewable energy, automotive, and consumer electronics sectors. Hedging is a strategy where a trader takes a position to protect themselves from potential losses in another position. This strategy is a means of diversification and can help reduce the trader’s overall risk and protect their portfolio. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor.
When using this strategy, a trader may buy gold when they identify the start of a potential uptrend in the ratio and sell when they identify a downtrend. This strategy assumes that the trend will continue, and the trader can capture gains by following it. Momentum trading is a strategy wherein traders buy or sell an asset based on its upward or downward trend in price.
Throughout history, the gold-silver ratio has been influenced by factors such as supply and demand, changes in monetary policies and geopolitical events. Today, it remains a tool used by investors seeking potential trading opportunities with the precious metals. When it comes to precious metals trading, the gold-silver ratio constantly fluctuates, presenting various trading strategies for astute investors. In the following section, we explore some of those trading strategies that offer ways to potentially capitalize on price differentials, trend movements and overall market dynamics between the two metals. They place bets on the direction of the ratio based on their sense of the likely direction of the prices of one or both metals.
The current spot price of gold or silver is not the only factor you can use to make better investing decisions. The gold silver ratio is considered one of the most important tools for investors who want to maximize profits while stacking precious metals. Importantly, the gold-silver ratio shouldn’t be the only tool you use to make investment decisions about trading precious metals. It’s crucial to consider other factors, like those mentioned above in addition to market trends, geopolitical events and economic indicators. Moreover, the ratio does not provide information about the absolute price of gold or silver, but only the relative value between the two.
Under Pharaoh Menes, the Ancient Egyptians pioneered the first standardized gold silver ratio in 3,000 BC! Granted, Menes’ perspective on the gold-silver market was quite a bit different than ours. Investors use the gold silver ratio to determine whether or not either precious metal is undervalued. On the flip side, a very high gold silver ratio could tell investors that it is a good time to buy more silver.
Using the Gold/Silver Ratio When Buying and Selling Gold and Silver
Outcrop Silver is dedicated to expanding current mineral resources through strategic exploration initiatives. The current ratio of 92 (July 1, 2025) is approximately 40% above its 25-year historical average, placing it at an elevated level from a historical standpoint. This article explores several of these historical instances as detailed in the accompanying infographic, based entirely on past market data. Discovery Alert provides fast, reliable, and actionable insights into significant mining and exploration news. Our mission is to deliver clear, data-driven content that helps investors stay ahead of the curve. “Properly sized positions are essential when implementing ratio-based strategies,” advises wealth manager Patricia Hernandez.