A Historical Guide to the Gold-Silver Ratio

Many investors today feel the ratio should trade in line with the physical ratio of gold to silver in the earth’s crust. The availability of the the two metals certainly affected their relative prices in the past. The gold-silver ratio describes the price relationship between gold and silver. The ratio indicates the number of ounces of silver it takes to equal the value of one ounce of gold. There’s an entire world of investing permutations available to the gold-silver ratio trader.

That is less of a physical silver hoard than either Warren Buffett’s Berkshire stacked in the late 1990s, nor what JP Morgan and its clients alone have sitting in their COMEX warehouse as of this year 2020. Throughout history people used both gold and silver as money, minting coins from these two rare and beautiful precious metals. At its record peak of summer 2019, the volume of betting on silver prices via Comex futures and options was equivalent to 175% of annual mine output worldwide, and it has averaged 117% across the last decade.

Just having the gold-silver ratio at your disposal isn’t enough; one must also know how to interpret it. The ratio is a compass guiding investors towards potentially profitable trades, aiding in determining whether gold or silver is undervalued or overpriced at the current market prices. Many modern-day gold and silver bullion buyers and traders use the fluctuating Gold Silver Ratio to determine which precious metal may be poised to outperform the other.

Shipping gold to where it was most highly valued offered a bumper return in silver. It also helped close these geographical gaps in the Gold / Silver Ratio – a process known to modern financial traders as „arbitrage” – by improving the balance of supply and demand in each local market. Because of the silver market’s size and volatility, speculative trading in the grey metal is much heavier than gold, relative to the physical market’s underlying value.

Also under threat of imprisonment and a $10,000 USD fine (about $800k in today’s fiat Federal Reserve notes) about 1/4th of the US citizenry complied with the 1933 US Executive Order 6102. Every now and again, the term Gold Confiscation gets lobbed onto a story either in the alternative or mainstream financial media, and mostly the reason is clickbait, not for actual research nor understanding about its history. Throughout recent years 2016 through 2019, many secondary bullion products were sold back into the bullion industry compressing then price premiums while also damping new coins sales data year over year. It’s important to take into account other market factors and conduct your own research before deciding to invest. But a high ratio could potentially be a signal to start paying closer attention to silver. One estimate in the early 2000s said the above-ground stockpile of gold could meet more than 6,600 days of demand.

Let us begin this analysis with a clear explanation of what the Gold-Silver Ratio is.

Almost 60% of silver’s annual demand now comes for productive uses, versus barely 10% for gold. J.B. Maverick is an active trader, commodity futures broker, and stock market analyst 17+ years of experience, in addition to 10+ years of experience as a finance writer and book editor. You can learn more about the respective fundamental investment factors for both gold investing and silver investing here at SD Bullion. The Gold-Silver Ratio has been as low as 2.5 oz of silver to acquire 1 oz of gold (ancient Egypt). The Gold-Silver Ratio has gotten as high as over 100 oz of silver to buy 1 oz of gold in the 1930s as the US government forced US citizens to turn in their gold coin savings. The first few terms are 3, 2, 4, 11, 24, 52, 115, 254, 560, 1235, 2724, 6008,…

For example, say the ratio is at historically high levels and investors anticipate a decline in the price of gold relative to the price of silver. Those investors would simultaneously buy silver while selling short an equivalent amount of gold. If their assumption is correct, they will realize a net profit from a relatively better price performance of silver compared to that of gold. The practice of trading the gold-silver ratio is common among investors in gold and silver. The usual method of trading the ratio is hedging a long position in one metal with a short position in the other.

Historical overview of gold vs. silver prices

As we continue to trek through the ever-changing landscape of precious metals trading, the gold-silver ratio remains a valuable companion on our journey. Traders can use it in various ways to inform their trading strategies, using it as a guide to navigate the sometimes-turbulent waters of precious metals trading. In modern times, the ratio is no longer fixed by governments but determined by the market. It is influenced by factors like industrial demand for silver, prevailing economic conditions, and mining output. Recognizing the historical context of the gold-silver ratio not only makes it a more fascinating tool but also highlights the timeless value of gold and silver as vital economic resources.

When the ratio is greater than 1.0, the volatility of silver is higher than that of gold, and when it’s less than 1.0, silver’s volatility is lower than that of gold. The gold-silver ratio has fluctuated in modern times and never remains the same. That’s mainly due to the fact that the prices of these precious metals experience wild swings on a regular, daily review narrative and numbers basis.

• For example, we will examine times the Gold Silver Ratio has fallen above or below its 20th and 21st Century averages or longer, which will show you in various longer-term Gold Silver Ratio charts below.
• This ratio, a simple division of the gold price by the silver price, holds profound implications for investors and traders alike.
• In the context of precious metals trading, investors can use the gold-silver ratio as a strategic tool for hedging their portfolio against market volatilities.
• The Gold Silver ratio measures the relative strength of gold versus silver prices.
• It was just over one full human lifetime ago, therefore it is almost fully forgotten in detail how the US confiscated gold under the guise of combatting the then deflationary depression.

What is the correlation between gold and silver ratio?

The US Treasury and the Federal Reserve are now combined so they can buy up junk bonds, equities, and bailout connected insider corporations and cronies. (sequence A in the OEIS).The limit ratio between consecutive terms is the supersilver ratio. Peering through the lens of history, we see that the gold-silver ratio has been a part of human civilization for thousands of years, even before the concept of the gold standard. The first Egyptian Pharaoh, Menes, decreed that two and a half parts of silver were equivalent to one part of gold.

What is the Gold / Silver ratio?

When the Gold/Silver Ratio rises, it means that gold has become more expensive compared to silver, and the cheaper metal might offer better value. It hit a new all-time high above 125 in March 2020 when the Covid Crisis saw gold investing jump but crushed the silver price, along with most other industrial commodities, as world economies went into lockdown. If they can anticipate where the ratio is going to move, investors can make a profit even if the price of the two metals falls or rises. The gray-colored line tracks the ongoing fiat US dollar price of silver in this 21st Century bullion bull market (again see the right axis). In each, you block off as many squares as you can, which corresponds with the integer floor of the metallic mean. So in a silver ratio rectangle, you block off two squares and are left with a new, smaller silver ratio rectangle.

Gold Silver Ratio 300 Year Chart

Since gold and silver prices are denominated in currency, changes in currency value directly affect these prices, leading to shifts in the ratio. Additionally, broader economic factors, such as crude oil prices, stock market performance, and Treasury yields, can influence investor sentiment towards precious metals and subsequently affect the gold-silver ratio. Because gold and silver prices change based on the law of supply and demand, the limefx gold/silver ratio has fluctuated over time. Before the adoption of the fiat currency system, national currencies were often backed by gold or silver.

Each pair of adjacent integers has its own metallic mean, which is the collective name for the full set of roots that includes the golden ratio. Safe to say fiat animal spirits escaped the barn over five decades ago, and we are setting up to relearn many of the ugly lessons of fiat currency history to come. The US Congress just simply further allows fiat currency created at will via the private Federal Reserve difference between gitlab and github system.