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Originally Posted On: https://www.herobullion.com/what-is-the-gold-silver-ratio/

 

What is the Gold Silver Ratio – And Why Does it Matter?

 

What is the Gold Silver Ratio – And Why Does it Matter? 

Gold and silver have always been the most popular precious metals. Most investors intuitively know that it is best to buy precious metals when prices are low. 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. 

What is the gold silver ratio? The gold silver ratio refers to how many ounces of silver it would take to purchase a single ounce of gold. The higher the gold silver ratio, the bigger the price difference between gold and silver is. Because both precious metals fluctuate in value daily, the gold to silver ratio is always changing. 

As you’ll learn on this page, the gold silver ratio is one of the most important tools used by savvy bullion stackers to get the most out of their investments. This post is all about the gold silver ratio. We’ll explain what the gold silver ratio is, why it matters, and a few tips on how to use it to revolutionize your investing game. 

What is the Gold Silver Ratio Used For? 

Investors use the gold silver ratio to determine whether or not either precious metal is undervalued. An extremely low gold silver ratio may signal that gold may be undervalued. On the flip side, a very high gold silver ratio could tell investors that it is a good time to buy more silver. 

Over the past century, the average gold silver ratio has been 40:1. Investors typically buy more silver when the gold silver ratio approaches 80:1, and they sell when the figure gets closer to 40:1. These are rough estimates, but 40:1 and 80:1 tend to represent the lower and upper limits of the gold silver ratio in recent history. 

How to Find Today’s Gold Silver Ratio 

The gold silver ratio is constantly changing. As of right now, the gold silver ratio is just under 76:1. In other words, it takes around 76 ounces of silver to match the value of 1 oz of pure gold. Online price charts can help investors identify the current gold silver ratio. Be sure to spend some time checking the gold silver ratio before making your next gold or silver purchase. Like we mentioned earlier, the gold silver ratio can be a great indicator of whether or not it is a good time to buy either precious metal. 

How to Use the Gold Silver Ratio to Invest Smarter

Using the gold silver ratio to make smarter investment decisions is a well-established strategy. In fact, the gold silver ratio can actually be more useful in determining which precious metal is best to buy than spot prices alone. 

Gold Vs. Silver – What’s the Better Investment?

How is the gold silver ratio used by investors? Most investors opt to buy silver when the gold silver ratio is high, because a high gold silver ratio indicates that silver may be undervalued compared to gold bullion. When the gold silver ratio is low, gold is the undervalued metal – and that means it may be time to buy more gold! 

The gold silver ratio allows investors to treat the two metals like a see-saw. When the ratio is high, investors often sell their gold to take advantage of low silver prices. Likewise, extraordinarily low gold silver ratios may trigger a silver sell-off as investors put their money into undervalued gold. 

Ideal Gold Silver Ratio

What is the best gold silver ratio? The ideal gold silver ratio historically has been 40:1, which is the average gold silver ratio over the past 100 years. Gold silver ratios have fluctuated considerably over the last century, though, so it’s helpful to take a closer look at the data. With a few notable exceptions, the gold silver ratio has ranged from 40:1 to 80:1. 

If you’re waiting for the perfect time to sell silver and buy gold, consider making the swap when the gold silver ratio gets close to 40:1. Investors who bet heavily on gold typically aim for the opposite – the best time to sell gold and buy silver is when the gold silver ratio approaches 80:1 or more. 

Many silver investors believe the true gold silver ratio should be 16:1, since silver is 16 times more common within the Earth’s crust than gold. This idea makes logical sense, but don’t hold your breath – it’s unlikely that the gold silver ratio will ever be anywhere close to 16:1. 

When to Switch From Gold to Silver

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. 

When is the best time to swap gold for silver? Experts recommend buying gold when the gold silver ratio is low and investing in silver when the ratio is high. The ideal gold silver ratio for each trade type is tough to pin down, since the ratio is constantly changing. As a general rule, many investors trade their silver for gold when the ratio approaches 40:1 and switch back when the ratio is closer to 80:1. 

A word of warning: gold silver ratios are volatile – especially right now. Both metals change value constantly, so there’s no telling what the gold silver ratio may be tomorrow. Trying to play the precious metals market using the gold silver ratio is difficult and probably isn’t a great strategy for beginners. Investors who understand the data and are confident in their predictions, however, can benefit from using the gold silver ratio to inform their investing decisions. 

Record-Breaking Gold Silver Ratios 

How old is the gold silver ratio? Although it may seem like the gold silver ratio is a modern invention, the concept is actually thousands of years old. 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. Under his rule, 2.5 ounces of silver were equal to one ounce of silver. 

The volatility of the gold silver ratio is part of what makes it so difficult for new investors to understand. If you’re planning to use the gold silver ratio to make stronger investing decisions, you’ll need to get a better idea of what gold silver ratios have looked like throughout American history. Luckily for you, thousands of years of humans bickering over how much silver equals an ounce of gold give us plenty of data to work with! 

Highest Gold Silver Ratio Ever

What was the highest gold silver ratio ever? The highest gold silver ratio in history was 125:1, which happened during the COVID-19 pandemic in April 2020. This isn’t surprising, considering that gold hit an all-time high that month. At the height of the pandemic, the ratio between gold and silver soared to new heights. 

The Gold Silver Ratio Helps Traders Decide Which Metal is Undervalued.

During the 1940s-50s, the gold silver ratio hovered in the 90s, marking one of the highest average periods for the gold silver ratio in modern history. President Roosevelt banned the private hoarding of gold in 1933, so it’s no surprise that gold-silver ratios climbed during this time period. 

The gold standard ratio entered its true modern period in the 1970s, when President Richard Nixon eliminated the gold standard. After the collapse of the international gold standard, the gold silver ratio became a popular tool used by stackers to time their investments in either metal. 

Lowest Gold Silver Ratio of All Time 

What was the lowest gold silver ratio ever? Gold-to-silver ratios were lowest during Ancient Egypt, when 2.5 oz of silver bullion equaled 1 oz of gold. This 2.5:1 ratio has never been replicated since – and it likely never will be. To the Ancient Egyptians along the River Nile, silver was often considered even rarer than gold. Close relationships with nearby civilizations in late Ancient Egyptian history gave the Egyptians easy access to gold. Silver, however, was harder to come by. 

Has the gold silver ratio always been high? The gold-to-silver ratio has not always been as high as it is now. In fact, the gold-to-silver ratio has been very low for most of recorded human history. Here’s a few of the lowest gold-silver ratios in history: 

• 46 BC – 11.5:1 (Ancient Rome)
• 1792 – 15:1 (USA)
• 1834 – 16:1 (USA)

During the latter half of the 20th century, the gold silver ratio increased considerably. The outbreak of World War II and the collapse of the global gold standard were two particularly important events for the modern gold-to-silver ratio. Since the late 20th century, the gold-to-silver ratio has remained relatively steady in the 40-80 range. 

How is the Gold Silver Ratio Determined? 

The gold silver ratio may seem complicated to new investors, but it’s actually pretty simple. 

How is the gold-to-silver ratio determined? Unlike some investing metrics, the gold silver ratio is a direct expression of the value relationship between gold and silver. To find the gold silver ratio, just divide the current spot price of gold by the current spot price of silver. The resulting figure is the current gold-to-silver ratio. 

For example, let’s imagine that the current spot price of gold is $2,000 and the spot price of silver is $20. Divide 2,000 by 20 – the result is 100. This means that it takes 100 ounces of silver to buy one ounce of gold, which makes the gold silver ratio 100:1. Investors can use this process to figure out the gold silver ratio today, which can help them make more informed investment decisions. 

The Gold Silver Ratio as a Buy-Sell Signal 

The gold silver ratio is one of the most effective buy-sell signals for precious metal investors. In addition to being easy to understand, the gold-to-silver ratio gives investors a simple way to compare the prices of two different precious metals. As a matter of fact, some investors actively trade back and forth between gold and silver using the gold-to-silver ratio. 

Timing the gold market can be tricky. Traders use multiple factors to determine the value of gold, so attempting to make wise investments based on gold’s price-action is a difficult task that some investors take decades to truly learn. The gold silver ratio, however, is rather simple to understand – and even easier to implement as a trading strategy. 

The general rule of trading still applies to precious metal stackers – buy low, and sell high. Smart investors use the gold silver ratio to help them follow this rule. When the gold-to-silver ratio is high, silver is likely undervalued, meaning that it might be a great time to sell. And when the ratio is low, gold is the undervalued metal, and it could be a good idea to exchange your silver for gold. 

Of course, nothing is guaranteed for investors – especially if your goal is to time the market. Every year, thousands of investors try their hand at playing the market. Every year, thousands of investors fail, losing their money in the process. For most investors, gold and silver are exceptional long-term investments rather than short-term commodities. Still, many traders swear by the gold silver ratio as a solid method used to predict the relative value of gold versus silver. 

Why is the Gold Silver Ratio So High? 

The gold silver ratio is highest when gold prices are high and silver prices are low. Strangely enough, this means that a high gold silver ratio can mean one of two things. When silver prices drop considerably and gold prices remain the same, the gold silver ratio increases. However, gold silver ratios also climb when silver’s price stays the same and gold becomes more valuable. 

Whether you’re a new investor or a seasoned bullion veteran, learning to use the gold silver ratio might be the most important thing you can do for your portfolio.