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Understanding the Gold-Silver Ratio

John-Rothans

Written by John Rothans

Feb 23, 2024

What is the gold-silver ratio, and why does it matter?

To understand the relationship between silver and gold, it may help to first understand the gold-silver ratio (GSR). This ratio is one of the many key indicators used by seasoned precious metals holders and financial managers to help determine the right time to buy silver or gold, based on portfolio goals.

Read on to find out what the gold-silver ratio is and how you can use your newfound understanding to help decide on the best time to expand your precious metals portfolio.

What is the gold-silver ratio?

Silver and gold trade at different amounts in financial markets. The gold-silver ratio measures how many ounces of silver it takes to buy one ounce of gold. When the ratio is smaller, it’s a sign that silver is outperforming gold. When the ratio is larger, it indicates that gold is outperforming silver. In theory, the higher the number, the more silver you would need to purchase one ounce of gold.

You can easily calculate the gold-silver ratio by dividing the price of gold by the price of silver per troy ounce.

Price of 1 oz. of Gold / Price of 1 oz. of Silver = The Current Gold-Silver Ratio

Interested buyers use the GSR as a timing indicator to help them decide when to buy gold or silver or which metal to buy at any given time.

Historical data shows that the gold-silver ratio originally mirrored the natural occurrence of silver to gold as mined from the earth, which was around 17:5. However, governments seeking monetary stability began to set the gold-silver ratio. The ratio was set at 15:1 by the U.S. government from 1792 to 1833 and increased to 16:1 in 1834, notes geologist Michael Fulp on Kitco.com. To get a better idea of how the gold-silver ratio has fluctuated since the United States went off the gold standard in 1973, take a look at the chart below.

Gold to Silver Ratio

Chart showing gold silver ratio

Source: Macrotrends

As of February 2024, the gold-silver ratio is approximately 90.24—in other words, at current gold and silver prices, it would take about 90 ounces of silver to buy one ounce of gold.

How is the gold-silver ratio used by precious metals buyers?

When you understand the gold-silver ratio, you can use it to help decide when might be the right time to buy gold or silver based on your precious metals portfolio diversification goals.

The gold-silver ratio “lends valuable guidance to ascertain whether one metal is over- or under-valued with respect to the other,” writes Certified Professional Geologist Michael Fulp. “My fundamental idea is to buy silver during instances of very high ratios,” Fulp writes. Like many precious metals holders, Fulp strives to maintain a percentage of his net worth in physical bullion, “mostly in gold but always a portion in platinum and silver.”

The gold-silver ratio largely remained under 80 between 1960 and 2015, according to Kitcoʼs gold-silver ratio charts. Since then, the GSR has generally stayed above 80. In 2016, Bloomberg noted that the past three times the gold-silver ratio had dropped below 80, “silver outperformed gold by 60 to 302 percentage points in the next two or three years.”

This may bode well for those considering silver for their portfolios, as the gold-silver ratio remained below 80 between August 2020 and March 2022 and has dipped under that level at least two more times since. Meanwhile, the Silver Institute predicts that silver demand may reach the second-highest level on record in 2024, pushing silver prices to a 10-year high.

Given this outlook for silver, it may be a good time to diversify your precious metals portfolio with the popular 1-oz. Silver American Eagle coin, an ideal choice for discerning wealth holders. Quickly and easily secure your silver purchase today by calling 1-888-709-1150.

How is the gold-silver ratio used elsewhere?

The gold-silver ratio is often used as a sort of “Wall Street Rorschach test” to determine the potential direction of the equity market, reports CNBC. But how the ratio is interpreted remains subjective.

Those who veer toward being more “bearish,” like Larry McDonald, founder of “The Bear Traps Report,” tend to use the ratio as a “real sign of speculation” and “one of the things [to] look at in terms of systematic risk and warning signs for the market.” After all, he points out, the gold-silver ratio dropped in 2011 before the marketʼs late-summer dive.

Those who tend to be more “bullish,” like Oppenheimer technical analyst Ari Wald, see green where McDonald sees red. With help from analyses dating back to 1998, Wald reports, “When silver outperforms, over the next 12 months the S&P is up on average 11.5 percent; when gold outperforms, the S&P is only up 6.5 percent.” For Wald, silverʼs outperformance signals that discerning wealth holders are embracing risk again and that “the S&P 500 is setting up for new highs.”

Both perspectives are supported by the fact that silverʼs industrial uses mean that its performance is more closely tied to global growth, says CNBC, and consequently more highly correlated with stocks than gold.

What does the gold-silver ratio mean for you?

The gold-silver ratio is by no means the “be-all and end-all” solution for timing your precious metals purchases, but it can be a useful tool. Understanding how precious metals can be used to preserve and protect wealth is also highly beneficial when you’re modifying or establishing your portfolio.

U.S. Money Reserve has created a free Gold Information Kit that anyone can use to expand their knowledge of precious metals. You’ll learn why precious metals are considered a fantastic asset for diversifying a portfolio and how they can protect your wealth during financial downturns.

Call at 1-888-709-1150 to Request your Gold Information Kit today.

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