The Gold/Silver ratio is an indicator which enable to unow how many ounces of silver can purchase one ounce of gold. Explanation of the use of this ratio to assess the gold and silver prices.
What is gold silver ratio ?
The gold/silver ratio is calculating by divising the price of one ounce of gold per one ounce of silver.
Le ratio Or/Argent se calcule en divisant le prix de l’once d’or au prix de l’once d’argent.
- The gold spot price is 1060,40 $.
- The silver spot price is 14,05 $.
- Gold/Silver ratio = 1060,40/14,05 = 75,42
It can be interpret this result as follows : with a little more than 75 ounces of silver, we can buy an ounce of gold.
Or 75 silver Eagle (American silver coin) can buy one 50 dollars gold Eagle.
How to read into the Gold/Silver ratio ?
A low ratio (downward curve) indicates that the price of silver put closer to the price of gold.
The gold / silver ratio is now around 75. It makes us realize how the value of silver is less than the gold.
The factors behind the silver metal undervalued compared to gold remain confused.
Looking at the gold / silver ratio today, we see that an ounce of gold therefore has a greater purchasing power than an ounce of silver. To simplify, let’s say the one who invested in gold could afford a beautiful house, while the one who invested in silver could afford a new car.
However, gold has not always had a greater value than money. We need to consider the following, namely the gold/silver ratio gold and their relationship to price.
Gold/Silver ratio 100 years.
Historically, this ratio was around 15, or even 5 in the Chinese empire of the time. Given its rarity, silver should, according to many experts, this ratio back to 15 in the coming years.
According to the historical average, the ratio was set at 1/16 from 1000 to 1873. 16 silver coins allowed to buy a gold coin.
During the last 100 years, this ratio has been reached only twice.
During the bankruptcy of Lehmans Brothers in late 2008, the ratio peaked at more than 80 ounces of silver for one ounce of gold. The ratio then hit low levels of three decades around 30 when the price of silver peaked at 50 dollars an ounce in early 2011.
Why the Gold/Silver ratio is important ?
The gold / silver ratio is very important for people investing in gold or physical silver, but also for traders speculating on the price of gold or silver. This ratio determines the ideal time to buy or sell.
When the ratio is high, the theory is that it is moving towards gold. When the ratio is low, it’s silver metal that is preferred.
According to experts, everything indicates that this ratio will affect the 1/16 again in the next decades. According to them, the production of silver is only 10 times the extraction of gold in the world. Logically, this ratio should display 1/10 shortly.
Normally, the price of silver must match the actual inflation rate. If in the 80s, the price was 50 dollars, today it must be $ 400 if it aligns the level of actual inflation since then.
Another factor that could explain the increase in the value of money: the shortage of gray metal. Indeed, physical silver has difficulty meeting the needs of industrial demand.
Physical silver production begins to decline gradually. When the reserves will be exhausted, the gray metal market will buckle and those who decided to buy silver metal will quickly get rich.
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