The Gold- Silver Ratio is calculated as a measure of the value of one ounce of gold in relation to the value of one ounce of silver. For example, if gold traded at £1,425.25 and silver at £15.45, the gold: silver ratio would be 92. There is a correlation between gold and silver as the two primary investment metals. The ratio can be extremely useful in understanding the relationship between the metals and predicting future movement for the metals.
To say that silver is more undervalued than gold or vice versa is a complex question. Some investors might use the latest Gold to Silver charts to get an approximate answer. However, this is not the be-all and end-all when making investment decisions. The gold-silver ratio is simply one piece of the data puzzle – albeit an important one – that investors must combine with other factors to make informed decisions about which metal is likely to rise in value. Other important factors include the amount of supply and demand for each metal and global economic conditions. So, while the gold-silver ratio can give us a useful starting point, it’s only part of the picture when making investment decisions.
If the ratio of gold to silver is sitting comfortably around the 80 mark, this could indicate that it is the right time to buy silver because the usual range between gold and silver is between 50 and 70.
There has been a great deal of fluctuation in the ratio throughout history. For example:
- A peak ratio of 123.5 was reached in 2020
- The ratio narrowed to 17 in 1980 at the peak of the last precious metals boom
- The ratio was fixed at 15 at the end of the 19th century
- When the Roman Empire was in power, the ratio was set at 12
- During the time of Alexander the Great (323BC), the ratio was 12.5.
How to calculate the gold–silver ratio?
You can get the gold-to-silver ratio by dividing the gold price (per oz) by the silver price (still per oz).
- Gold price today: £1,425.25
- Silver price today: £15.45
- Gold / Silver ratio = 1,425.25 / 15.45 = 92.24
You can interpret this finding as follows: You need roughly 92 ounces of silver to buy one ounce of gold Britannia Coin.
Investors believe the ratio should be 16:1 because the Earth’s crust contains 16 times more silver than gold. The gold-silver ratio is not a perfect measure of value, but it can be a helpful tool for investors. When the ratio is high, it may be an excellent time to buy silver. Conversely, when the ratio is low, it may be an ideal time to buy gold. However, it is essential to remember that the ratio is just one piece of information and should be used in conjunction with other factors when making investment decisions.
Investors should know that the gold-silver ratio is not a perfect measure of value. However, the balance can be a valuable tool for understanding the relative value of these two precious metals.
Some say the ratio may fall further because silver is mined nine times more worldwide than gold. In addition, other sources claim that there are more than 160,000 metric tons of gold above ground, while most of the silver mined throughout history has ended up being used in industrial processes.
Disclaimer: Precious metal prices can be volatile and the value of your metal may go down as well as up. No responsibility can be accepted by Ajjore Limited T/a Bullionjoy for any loss caused by acting on information we have provided. Disclaimer: This blog is the personal viewpoint of one individual. Before investing, customers should conduct their own independent research and get advice from experts. We are not a source of investment advice; therefore, the contents of this article should not be considered investment advice.