The gold price has been soaring lately, but the gold-silver ratio has also seen a huge rise – currently sitting at an incredible 91-1. This climb is the highest price of gold relative to silver for more than a quarter of a century. Could this mean silver's day is coming?
The Gold-Silver Ratio
The gold-silver ratio shows us how gold and silver are performing against each other and is derived by dividing the price of gold by the price of silver per ounce. This calculation gives us the amount of silver ounces in value it would take to buy one ounce of gold.
At the time of writing, the ratio stands at an incredible 91-1, and means that it now takes the value of 91 ounces of silver to buy just one ounce of gold.
Looking to History
During Roman times, the gold-silver ratio was set at 12-1. The US then fixed the ratio in the 1700s at 15-1, which meant that one Troy ounce of gold could be bought with just 15 Troy ounces of silver.
The ratio spiked above 30 at the start of the 20th Century when silver was demonetised due to the global Gold Standard. The average ratio during the 20th century was around 47-1, with the average rising over the last 20 years to 60-1.
Looking to history, we can see that the current ratio of 91-1 is historically very high, in fact – this is the highest it’s been since 1993. For any youngsters reading, this was the year that Jurassic Park was the big summer blockbuster and Bill Clinton was sworn in to his first term as US President.
Looking to the Future
Does the high ratio mean it is time to invest in silver?
Whenever the ratio climbs above 80, this is usually said to be when we tend to look into buying silver. While the current ratio is not the absolute highest it has ever been, it’s pretty rare that the value of silver is so low compared to gold, which makes it a potentially attractive investment right now. Many investors tend to use the high ratio as a signal to take advantage of the low price of silver and load up on the grey metal rather than the yellow metal.
However, silver also has a reputation for being volatile - keep in mind that silver production looks to be in decline, as industrial uses for silver are on the rise. Also, should gold continue at its current heights, or even higher, could we possibly see the silver price gain as investors shift their purchases to silver?
It is all speculation, of course – but the bottom line is that the gold-silver ratio can be a valuable tool to indicate whether silver is relatively cheap in comparison to gold, and, in our opinion, is definitely worth keeping an eye on.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.