Very simply, the price of gold, divided by the price of silver, gives you a number called the ‘gold-silver ratio.’ This ratio goes up and down, because gold and silver do not go up and down at the same time.
As an example, let’s say the gold-silver ratio was 90, as it was in Feb 2024. This means that 1toz of gold is worth approximately 90toz of silver. Compare that with late 1997 when the ratio was 50 (1toz of gold was worth approximately the equivalent to 50toz of silver), and it has even dropped as low as 32 in 2011. Right now, it is around 78.
In other words, gold goes through periods of being over valued, and under valued against silver.
Why is this interesting? We often get asked ‘what should I buy? Gold or silver?’ Obviously we cannot answer that question, only YOU can decide. What we can say is that knowing how to read these charts, and understand this ratio, will add to your understanding precious metals as an investment, and ultimately what is a better investment at any given time.
Some people who know what they’re doing ‘play’ the gold-silver ratio, by swapping their metals at the extreme outlying, under/overvalued marks. This is not something you should start doing without more knowledge and experience.
What is the ‘natural’ ratio? According to the mining industry, for every 1toz of gold that is dug out of ground, roughly 8toz of silver is dug out. Will the market ratio ever hit that mark? Find out by understanding this ratio more here, and keep watching it!
