For both novice and experienced precious metal investors, the gold to silver ratio has served as an effective tool to help decipher which metal to buy, when to hold it and when to sell it.
The gold to silver ratio describes how many ounces of silver it takes to equal one ounce of gold. It is calculated by taking the spot price of gold divided by the spot price of silver. Today it looks like this:
1316 ÷ 16.39 = 80
Before the 1900s, the gold-to-silver ratio hovered around 16. This was the case for two main reasons: predicted metal available for mining and government meddling. The government involvement was likely because many countries were using gold- and silver-backed currencies. For example, the United States (among others) limited the potential of the ratio by instating regulations to keep it level.
After the 1900s, the ratio averaged around 47. So, what does this mean? Some analysts believe that the gold to silver ratio, when not manipulated, will return to its pre-1900 average of 16 based solely on mining availability and cost.
If those analysts are proven correct, that would mean the price of silver would rise to an incredible $82 an ounce without gold moving a single dollar. Even if they are wrong and it only moves back to average levels, the silver spot price will have to rise to $47 without gold moving a dollar.
When the gold to silver ratio shifts back to neutral and averages return to the 40-range, gold and silver become equally valuable.
I use these ratios to capture more “bang for my buck.” The ratios help me determine when and how to maneuver my metals to take advantage of the correction back to normalcy. For example, I have been exclusively buying silver for the last two years because of the increasing profit potential. When the ratio reached 80 I took it a step further and exchanged a large portion of my gold coins into pre-1933 silver dollars. Once the ratio returns to normal levels, I will simply trade a portion back into gold.
We help clients exchange precious metal every day. If you are interested in bettering your position in silver, or if you own gold and are interested in learning more about how or why to exchange your values into silver, please let us know.