What you need to know about the gold silver ratio – when to buy?

Posted By Ziga Breznik, Last updated: May 7, 2020

gold silver ratio featured photo

The popularity of investments in precious metals such as gold and silver has never been higher. If you follow investment trends, you may well have heard the term “gold silver ratio”. If you are interested in potentially investing in gold and silver, it is important for you to learn what this term means, and why it is so important in helping you to make wise gold and silver investment choices!

One important thing to remember is that the gold silver ratio is not to be confused with the golden ratio (which is a mathematical ratio regarding shapes and geometry, and is commonly found in nature) or the silver ratio (another similar mathematical term)! 

The gold silver ratio is the term used to describe the difference in the market value between gold and silver at any particular time. The gold silver ratio has changed constantly throughout history.

The gold silver ratio is an important indicator for investors to decide the best times to buy and/or sell gold and silver assets.

Why Have Gold and Silver Investments Become More Popular Recently?

There are many factors why investing in gold, silver and other precious metals has become increasingly popular in recent years. Gold and silver are used commonly in jewelry, which has always been a profitable market. In addition, they are also used frequently in practical applications such as automobile components and machinery!

Perhaps the most notable reason for the increase in precious metals investments is the global economy. Crashes such as the 2008 financial crash lead to economic recessions where currencies decrease in value, so many people have opted to store their retirement assets in the form of precious metals via 401k to gold rollovers, which are much less likely to have their value be at the whim of fluctuating and unpredictable market forces.

Gold Silver Ratio Explained

The most simple way of defining and describing the gold silver ratio is that it is how much silver you would need to purchase an exact ounce of gold at any given time. The ratio defines the exact amount (measured in ounces) of silver that it would take to equal the gold price of an ounce.

This precise amount has varied, and will continue to vary, over time, in the same way that stock market values are constantly changing. Because the value of both gold and silver fluctuate over time, the gold silver ratio is ever changing. 

The ratio is presented as two numbers, as is any mathematical ratio. The first number refers to the number of ounces of silver that would equal one ounce of gold.

For example, if the gold silver ratio was defined as 30 to 1 (sometimes presented as 30:1), it would mean that the value of 30 ounces of silver was equal to the value of 1 ounce of gold. This would mean that gold was worth 30 times more than the same weight of silver, and you would need 30 ounces of silver to purchase a single ounce of gold!

The gold silver ratio is also sometimes expressed as a single number (in this case 30) which refers to the number of ounces of silver that equal one ounce of gold. There are many websites available that allow you to find out the current gold silver ratio at any particular time, although you can also calculate it yourself by dividing the current price of gold by the current silver prices.

What is the Gold Silver Ratio Used For?

The gold silver ratio is used by investors who trade in precious metals bullion. It is used to determine the best time to either sell or buy a particular asset. A high ratio is usually used as a signal that silver is preferable, as it means that silver is relatively cheap to buy compared to what it is worth to sell. A low ratio is more likely to be a sign that buying gold is a better decision for investors.

Because the gold silver ratio is prone to fluctuation, it is often very difficult for less experienced investors (such as individuals making investments for their personal retirement funds) to follow and understand well enough that they can make a profit from their investments.

The benefit of investing in both gold and silver (a common method of diversifying your assets), rather than simply one or the other, is that you can use the fluctuations of the gold silver ratio to your advantage and alternate your investment in one when the value of the other drops. The downside is that you will want to spend some time regularly checking the ratio, however the benefits can be well worth it!

The History of the Gold Silver Ratio

In all recorded history, the value of gold has been higher than the value of silver. In the 19th Century, the ratio averaged at 15 to 1, whereas in the modern day it has mostly been between 50 to 1 and 80 to 1!

Records only go back to 1687, when the gold silver ratio fluctuated as wildly as between 14 and 100!

In the late 18th Century, Alexander Hamilton devised the standards for coins, to ensure that the weight of each coin was correct, whether gold or silver. Throughout the 19th and early 20th centuries, a number of coinage acts continued the work of tracking the values of gold and silver in the United States.

The tracking of values all came about after the United States started working to set up its standards for coins with a series of coinage acts in the mid-1800s and early 1900s. These acts led to the ratio becoming more steady in the 20th and 21st centuries, although still fluctuating due to market forces. 

There is believed to be almost 18 times more silver in the earth than there is gold, which is one of the reasons that it is less valuable. However, silver’s industrial uses often increase its value when new technologies are invented or new factories are opened. Conversely, when industry and demand drops, as does the value this precious metal.

Gold has been less susceptible to changes in value, however is still affected. For example, in the mid 2010s the popularity of precious metals investments resulted in an overabundance of supply as producers raced to capitalise on the demand. This abundance led the gold price to drop.

The Future of the Gold Silver Ratio

It is difficult to predict the future of any market, and as such the future of the gold silver ratio is up for speculation. However, experts have predicted a return to the pre-1900 average ratio of 16 to 1 for a variety of reasons – although these experts often have vested interests in selling investments, so always do your research from a variety of sources!

Other Factors to Consider

If you are trying to decide whether to invest in gold and silver as part of your Individual Retirement Account (IRA) or not, you should always be patient and think long-term. It is often advised to buy silver when the ratio is higher than 50 to 1, to enable you to buy a higher quantity for cheaper prices. When the ratio is below 50 to 1, it is more commonly advised to invest in gold instead.

One often overlooked factor is storage of precious metal – as silver is lighter in weight than gold, it will take up more physical space, so factor this into your decision-making.

Before making any investment decision, you should always meet and discuss the options with qualified and reputable financial advisors, as there are so many different and unexpected factors to consider!

Make sure to read:

Our GoldCo Review – Best Of The Best for 2020

Regal Assets Review – Best Selection of Precious Metals

Advantage Gold – Best Education In The Industry



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