What is the Current Gold Silver Ratio?
Set your own switching rule
What is the Gold Silver Ratio and Why it Matters?
The gold-to-silver ratio is an important measure of the relative gold and silver prices. It compares the amount of silver required to buy one ounce of gold. This ratio affects investors in both precious metals and consumers who use these metals as currency.
For precious metals investors, the gold-to-silver ratio is an important metric to consider when deciding whether or not to invest in silver compared to gold. By knowing the current and historical ratio, precious metal investors can determine if they should focus on purchasing physical gold or physical silver/silver coins depending on their goals and budget.
Historical data shows that investors have used this fixed ratio as a guide for when to switch between gold and silver investments. A popular rule of thumb is the "80/50" rule, which suggests switching to silver when its value rises above 80 ounces of silver per 1 ounce of gold, and switching to gold when its value drops below 50 ounces per 1 ounce.
The Gold-to-Silver Ratio
indicates how much silver it takes to buy gold.
For example, if the prices of silver and gold are 23.28 USD and 1,946.47 USD respectively, then the ratio is 84.
In other words, it requires 84 silver ounces to buy 1 ounce of gold at these prices.
The Gold-to-Silver Chart
indicates whether gold is historically undervalued or overvalued vs. silver
When the ratio is low (e.g. 50) gold is cheap compared to silver
When the ratio is high (e.g. 80) gold is expensive compared to silver
Since 1985 the ratio has been hitting the 50 and 80 mark every 3 to 5 years
A Gold-to-Silver Switching Rule
is designed to multiply your metal holdings by switching into the undervalued metal
An 80-50 rule for example means switching into silver once the ratio hits around 80 and back into gold once it hits around 50
Since 1985 the 80-50 rule would have resulted in only 7 trades (one every 3 to 5 years) resulting in one gold ounce to become about 4.9 ounces (or silver equivalent).
Switching Rules also tend to lower price risk as they switch out of metals that raise disproportionally fast providing less volatile and higher results over the long term
One troy ounce of gold in 1975 was worth only 358 ounces of silver; by 2020 it went up more than 4.5 times to 1684 ounces of silver!
The 80-50 Switching Rule Example
One gold oz bought for 304 USD in Jan 1985 would be worth by March 2017 using:
- Straight Gold Holding: 1,204 USD x 1.0 oz = 1,204 USD (3.96 x investment)
- The 80-50 Switching Rule: 1,204 USD x 4.9 oz = 5,899 USD (19.4 x investment)
Past performance is not a guarantee of future return, but the principle of switching into the relatively undervalued metal is a historically sound strategy.
The Gold Silver Ratio Strategy Explained by Gregor Gregersen