Feb 2024


Feb 2024

What is the Gold Silver Ratio? Gold Silver Ratio Chart

By StoneX Bullion

The gold/silver ratio is a metric used to determine the relative value of silver to gold. It's used by traders to spot ideal opportunities for buying or selling gold and silver. If you're new to the world of precious metals trading, or want to understand more about the gold/silver ratio, you're in the right place.

In this article, we'll explain what the gold/silver ratio is, why it's important, and how it can be used by traders to expand their precious metals holdings. We'll also look at the limitations of using this strategy and answer some frequently asked questions.

What is gold/silver ratio?

The gold/silver ratio measures how many ounces of silver are needed to purchase one ounce of gold. It's calculated by dividing the current price of gold per ounce by the current price of silver per ounce.

For example, if the current price of physical gold is $2,000 per ounce and the price of silver is $20 per ounce, the gold/silver ratio would be 100 ($2,000 / $20 = 100). This means it would take 100 ounces of silver to buy one ounce of gold.

The ratio can fluctuate over time depending on supply and demand, economic conditions, geopolitical events, and investor sentiment. Generally, a high ratio suggests that silver may be relatively undervalued compared to gold, while a low ratio suggests the opposite. Historically, the gold/silver ratio has varied anywhere from 15 to 100. The highest-ever recorded gold/silver ratio was in April 2020 when it reached 125.

Investors can use the gold/silver ratio as a decision-making tool. By measuring the change in ratio over time, some investors can estimate gold and silver valuations and use this to inform when is the best time to buy or sell their precious metals.

Why is the gold/silver ratio important?

While it may seem relatively simple, the gold/silver ratio is the oldest continuously tracked exchange rate in history. It's important for precious metals traders as it allows them to hedge their bets on when to buy or sell gold or silver, two metals which have a well-established correlation and rarely deviate from one another.

For example, when the gold/silver ratio is high it generally indicates that silver is undervalued and gold is overvalued. Investors might anticipate the ratio's drop and decide to buy silver while taking a short position in the same amount of gold. When the ratio is low, it indicates underpriced gold and overvalued silver. At this time, investors will choose to go long on gold and short on silver.

See more: Gold vs Silver Investments: Which is Better?

Trading the gold/silver ratio revolves almost entirely around switching holdings during historical extremes, however what's deemed a low or high ratio will depend on each investors' research and calculations. When investors manage to correctly anticipate the movement of the gold silver ratio, they can turn a profit regardless of whether gold and silver prices rise or fall.

How to use the gold/silver ratio for trading

Before you start dipping your toes into gold/silver ratio trading, it's worth knowing that it's mostly practiced by hard-asset enthusiasts. This is because the focus is on gaining larger amounts of the precious metal itself rather than increasing dollar-value profits. We'll illuminate this point with another example of using the gold/silver ratio for trading.

Let's say you have a 1oz gold bar and the ratio rises to 100. This means you can sell your one ounce of gold for 100 ounces of silver (or a 100oz silver bar). Remember, a high ratio is an ideal time to buy silver. When the ratio drops back down to a low of 50, you can then sell your 100 ounces of silver for two ounces of gold. You've now doubled your holdings of gold.

Again, trading the gold/silver ratio is less about considering the dollar value and more focused on amassing the metal itself. The value lies in increasing your holdings rather than dollar profits. When it comes to using gold as an inflation hedge or currency replacement, the amount of holdings in your possession are more important than the dollar value assigned to them.

Read more: Exploring the Role of Gold as an Effective Hedge Against Inflation

Tips for using the gold/silver ratio

With all that in mind, if you've decided you still want to dip your toes into using the gold/silver ratio for trading, keep the below tips in mind.

Dive into the gold/silver ratio history

Before you start trading, take some time to analyze the history of the gold/silver ratio. This can give you an idea of its past behavior which may (or may not) inform its future movements. When analyzing historical data, try to identify long-term and short-term trends, resistance levels, and any other indicators you think might demonstrate a good time to invest in gold or silver. Decide for yourself what may be a low or high gold/silver ratio.

Monitor the gold/silver ratio charts

After your initial study of the gold/silver ratio's historical movements, it's important to keep an eye on the charts to monitor how the gold and silver markets are moving. When you recognize an opportunity - such as a high or low ratio - it can be a good signifier to buy or sell at this time. Stay updated with market news and current events that might have an effect on prices, such as economic downturns or increased interest rates.

Always track your profit and losses and adjust your trading strategy when it's necessary. With time, you may be able to increase the amount of metal you own.

Gold Silver Ratio Chart

Below, you'll find a chart that tracks the current and historical gold/silver ratio, representing how many ounces of silver it takes to buy an ounce of gold. Since the price of gold and silver fluctuates daily, it's worth monitoring this chart regularly to keep track of movements in the market.


Limitations of using the gold/silver ratio

While it may sound like an ideal strategy, the gold/silver ratio shouldn't be the only tool driving your investment decisions. Below, we outline some limitations of using the gold silver ratio.

  • Market dynamics: Historical trends might not always predict future performance. Relying solely on the gold/silver ratio to make investment decisions may overlook other important factors impacting the market, such as the economy and geopolitical events.
  • Not a reflection of price: The gold/silver ratio is limited to expressing the relative value between these two metals and not their prices.
  • Extreme relative valuations: While you may be able to 'predict' a historical extreme, you have no way of knowing for sure. For example, you may decide to sell your gold for silver once the ratio hits 100, but it might continue to rise to new historic extremes for the next few years. In this case, you're stuck with your silver holdings until a new low.

Like any other investment strategy, using the gold/silver ratio comes with its own risks and limitations.

Gold/silver ratio trading strategies

There are a few different strategies you can use to capitalize on the movements of the gold/silver ratio. We outline some of these below.

  • Mean reversion: This is the most common strategy for using the gold/silver ratio and involves buying undervalued assets and selling overvalued ones. The mean reversion strategy relies on the assumption that the gold/silver ratio will return to its historical average. Using the mean reversion strategy, traders will buy silver when the ratio is high and buy gold when it's low.
  • Momentum trading: With this strategy, traders focus on buying or selling assets based on upwards or downwards trends in their prices. Instead of predicting reversals, momentum traders identify the start of a potential trend and try to ride the momentum of these movements, hoping the trend will continue.
  • Pair trading: Pair trading involves taking both long and short positions in two related assets to profit from the relative performance between them. If a trader assumes the gold/silver ratio will decrease, for example, they may take a long position in gold and a short position in silver, aiming to profit from both precious metals at the same time.

Keep reading: Why Buy Gold? Reasons to Invest in Physical Gold Bullion

Gold/silver ratio FAQs

Still have some questions on your mind? Below, we answer some common questions people ask about the gold/silver ratio.

What is the history of the gold/silver ratio?

The history of the gold/silver ratio dates back to ancient times where it was used by the Ancient Greeks, Romans, and Byzantines. When the first coins were made in Ancient Greece 2,500 years ago, the ratio of gold to silver sat between 10 and 13.5. During the Roman Empire, the ratio was set at 12.

In the Middle Ages, the gold/silver ratio was used in Europe to set an exchange rate between gold and silver coins. Over the last few centuries, the ratio has fluctuated from 2:1 to more than 100. In 1866, the ratio broke above 20 for the first time and has only dipped below that number twice - once at the end of WWI and again in 1969 when the US dollar was no longer linked with gold.

In 1991, the ratio peaked at 98, and it peaked again in the wake of the COVID-19 pandemic at 125 in April 2020. Historically, governments set the gold/silver ratio for monetary stability however now it's prone to fluctuations.

What is the gold/silver ratio today?

In early 2024, at the time of writing, the gold/silver ratio sits at 88.93. You should always check the current price, however, as it's prone to fluctuations.

Why is the gold/silver ratio so important?

The gold/silver ratio is valuable for traders as it allows them to gauge the relative value of gold and silver. With this insight, they can determine whether the metals are overvalued or undervalued at any given time and identify opportunities to buy or sell.

What factors cause the gold/silver ratio to increase?

Just like gold and silver prices, the ratio can increase due to several factors. These include supply and demand, economic conditions, geopolitical events, currency fluctuations, and mining production.

For example, during periods of economic uncertainty, investors might flock to gold for its value as a safe-haven asset. This increased demand can drive up the price of gold compared to silver and increase the gold/silver ratio. In another example, if industrial demand for silver were to decrease while investment demand for gold remains strong, it can increase the gold/silver ratio.

What does it mean when the gold/silver ratio rises?

If the gold/silver ratio increases, it generally means that the price of silver will decrease compared to gold, or that gold will outperform silver. In some cases, it may mean that gold is overvalued and silver is undervalued.

How is the gold/silver ratio calculated?

The gold/silver ratio is calculated by dividing the current market price of gold by the current silver price. The currency and weight used in the calculation doesn't matter, as long as the same currency and weight are used for both gold and silver. For example, you may calculate the ratio using US dollars per troy ounce or euro per gram.

See more: Troy Ounce: Definition, History, and Conversion Table

Start trading gold and silver today

Ready to step into the world of gold and silver investments? At StoneX Bullion, we stock an extensive range of investment-grade gold and silver bullion coins and bars, ready to crown your collection. We update our prices every minute so you're always shopping at the current market rate, and we're proud to offer competitive prices by rarely using intermediaries.

Dive into the world of precious investments and start browsing our range of high-quality gold, silver, platinum, and palladium bullion today.