Live Metal Prices / oz
Gold: 1827.25 USD
Silver: 21.14 USD
Platinum: 903.00 USD
Palladium: 1856.50 USD
Rhodium: 14100.01 USD

How Does the Gold-Silver Ratio Work?

Gold and silver are both popular precious metals for investors looking to hedge a stock portfolio, or to build a portfolio to hedge against inflation. Historically, gold has been one of the best investments as it has maintained its purchasing power for hundreds of years. The metal's value has outlasted every fiat currency that has been created. Yet silver is also a very good investment. Like gold, the grey metal has been used to make coins throughout history, as the metal has an intrinsic value that cannot be replicated with fiat currency. 

Although both make excellent investments in the long run, one very good question that many bullion investors ask themselves, is 'How can the relationship between gold and silver benefit my portfolio?" The answer to this question lies in the gold-silver ratio. 

What is the Gold-Silver Ratio?

The gold to silver ratio is the ratio of gold ounces to silver ounces, based on price. For example, if silver is $10 / ounce, and gold is $50 / ounce, then the gold-silver ratio would be 5. It would take 5 ounces of silver to equal the value of 1 ounce of gold. The gold-silver ratio is calculated by dividing the spot price of gold by the spot price of silver. Often termed the mint ratio, this ratio refers to the comparative value of an ounce of silver to an equal amount of gold. Traders use the gold to silver ratio to decide how much of each metal to purchase, and whether the current price of gold or silver is a good time to buy or sell. 

Typically, the ratio stands at around 80:1, for example, if gold is trading at $2,000/oz then silver should be trading at around $25/oz. This ratio is considered the average ratio historically between the two metals. Investors rely on this historical data in order to get an idea of whether gold or silver is overbought or oversold at any given time. For example, if gold is trading at $2,000/oz and silver is only trading at $10/oz, investors may see this as a good sign that the silver price is due to increase.

Why Does the Gold-Silver Ratio Fluctuate?

Prices of precious metals are always fluctuating. As a result, this affects the ratios as well. But gold and silver prices due tend to move in the same direction over time. However, the fluctuations experienced by each precious metal vary depending on market factors. 

What drives the price of gold and silver can differ. Gold has little practical use, unlike silver, platinum, or palladium. Traders often buy gold to use it as a store of value, with investors choosing gold because it acts as a safe-haven during times of uncertainty and economic crises. Though silver can also act as a store of value, it also has widespread industrial applications in industries ranging from electronics to medicine. 

An example of a gold-silver ratio fluctuation would be if both precious metals move in the same direction but by different amounts. If gold was $1,800/oz and silver at $25/oz, then the ratio would be 72 or 72:1. However, if the gold price then rose by 3% to $1,850/oz and silver increased by 12% to $28/oz, then the ratio would fall to 66. You would now need fewer ounces of silver to buy one ounce of gold. This could indicate that gold is undervalued or that silver is overvalued, and that it may be a good time to buy gold or to sell silver.

What You Need To Know About Investing In Gold

Precious metals like gold, silver, platinum, and palladium are used as a safeguard against financial troubles while making them prosperous investment opportunities. If you are looking to invest in silver or other precious metals like platinum, it is useful to use the ratio before making any decisions.

When the ratio is high, silver is a more favorable investment. When the ratio is low, traders look to buy gold. Many investors will trade their silver for gold as the ratio drops. The gold-silver ratio is a quick and effective way to evaluate the relative value between the two metals in order to decide if it a good time to invest.

Conclusion

There are always strong arguments to invest in platinum or palladium, which have better usage in industrial applications. But gold can also be valuable. Historically, gold will always be a safety asset, irrespective of industrial or economic decline. 

If you are looking for gold or silver as part of a portfolio or as a hedge, Suisse Gold operates a trusted platform for precious metals with up-to-date, real-time pricing.