Trading Insights Using the Gold-Silver Ratio

Trading Insights Using the Gold-Silver Ratio

In today’s economic landscape where devaluation, deflation, and other crises threaten fiat currencies, many investors turn to hard asset investments to secure their wealth. Precious metals like gold and silver are the most popular choice, particularly the former since gold has proven its capacity to maintain value and to act as a hedge for economic or political turmoil, like fiat currency collapse.

Gold and silver enthusiasts often use the gold-silver ratio as a strategy in getting substantial profit from these commodities. Today, we will look into how you can refine your trading insights using the gold-silver ratio.

Understanding the Gold-Silver Ratio

Simply put, the gold-silver ratio describes how many ounces of silver it takes to purchase an ounce of gold. In modern trade and investment, it is used to measure the relative strength of the gold prices compared to that of silver.

The ratio increases if:

1. Gold prices increase faster than silver or,

2. Silver prices decrease faster than gold.

Meanwhile, the ratio decreases if:

1. Silver prices increase faster than gold or,

2. Gold prices decrease faster than silver.

The gold-silver ratio has fluctuated throughout history and is believed to reflect the health of both local and global economies. It also tends to increase during times of economic distress because gold generally outperforms silver at times like this. 

From the ratio of 12.5:1 in 323 BC, to 12:1 during the time of the Roman empire and 15:1 by the end of the 19th century. In recent history, the observed ratio was 17:1 in 1980, until it peaked at 100:1 in 1991, and later dropped to a low of 40:1 in 2011.  The current ratio shows a multi-decade high of 86:1 as of November 2018, making 2019/2020 a compelling time for investors to buy silver and enter into gold and silver ratio trading.

How to Trade the Gold-Silver Ratio?

The gold-silver ratio can be a powerful tool for identifying opportunities in buying and selling these precious metals. Successfully trading the ratio means switching holdings at the right time. It is also anchored on the idea of accumulating greater quantities of these precious metals regardless of its relative dollar value.

There are two ways to trade the gold-silver ratio: 1) determining which metal has the strongest trend and then trading it; 2) trading the highs and lows of the ratio and determining whether the price of gold is expensive or cheaper relative to silver.

When trading the gold-silver ratio, keep the following things in mind:

– Use individual price trends alongside the gold-silver ratio to determine the stronger trend to trade;

– Implement a positive risk to reward ratio;

– The ratio is indicative of investor’s aversion towards risk particularly if it is peaking;

– The ratio is also indicative of the world economy;

– There is a risk for reversal when the ratio approaches historical highs and historical lows.

Now that you know how to refine your trading insight using the gold-silver ratio, it’s time to start adding gold and silver to your portfolio.

Begin Your Investment

You can begin your investment journey today with Private Vaults Australia, a state-of-the-art safe deposit box storage facility and gold bullion dealer servicing the Brisbane and Sunshine Coast regions.

For more info on trading insights using the gold-silver ratio, contact PVA or read the PVA blog for more interesting news, tips and ideas to guide you.

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