Both gold and silver are stores of wealth and hedges against inflation. For silver investors, the gold-to-silver ratio is a key metric to watch—just as professionals do—for price forecasts and asset allocation.
The ratio tells you how many ounces of silver you require to buy one ounce of gold. It acts as a gauge of the relative value between these two metals.
It’s easy to calculate because you simply divide the current gold price by the silver price. At the time of writing, gold is $3,300 per ounce and silver is $32.40 per ounce. That gives you a gold-to-silver ratio of about 101.9.
Historically, this ratio has seen large swings. During the Roman Empire, it was fixed at 12:1. During the COVID-19 crisis, it spiked to a record 125:1 as gold prices soared while silver stayed mostly flat.
For investors, the ratio offers clues about the relative valuation of each metal.
A high ratio suggests silver is undervalued. Investors may see this as a buying opportunity, expecting silver to rise as the ratio returns to normal levels.
A low ratio, on the other hand, suggests that silver is expensive compared to gold. This could prompt investors to shift funds from silver to gold.
What’s the long-term average of the gold-silver ratio?
Since the 1970s, after the gold standard ended, the average has hovered around 65:1.
Many investors actively trade the gold-silver ratio. The typical approach involves hedging: going long on one metal and short on the other.
For instance, if the ratio is unusually high and an investor expects it to drop, they might buy silver and short gold. If silver then outperforms gold, they could profit from the shift.
Those who believe the ratio will revert to its long-term mean may see today’s high level as a signal. It could be a good time to add silver, expecting the ratio to correct and silver to gain value.
The live gold price, silver price and gold to silver ratio can be found at www.kitco.com.
