Trading the Gold-Silver Ratio

A significant change occurred in 1933, when President Franklin D. Roosevelt suspended the gold standard to stem redemptions of gold from the Fed. This, along with other measures, weakened the link between the dollar’s value and gold. Many observers view this event as the moment when the U.S. dollar became a de-facto fiat currency, after which the role of governments in setting the price of gold and silver steadily declined.

The bet is that the spread will diminish with time in the high-ratio climate and increase in the low-ratio climate. Options, however, permit the investor to put up less cash and still enjoy the benefits of leverage with limited risk. To illustrate the gold/silver ratio, consider a scenario in which gold is trading at $1,500 per ounce and silver is trading at $15 per ounce. The gold/silver ratio would be 100, because it would take 100 ounces of silver to purchase 1 ounce of gold.

  1. When the ratio is higher and investors believe it will drop along with the price of gold compared to silver, they may decide to buy silver and take a short position in the same amount of gold.
  2. Almost 60% of silver’s annual demand now comes for productive uses, versus barely 10% for gold.
  3. Precious metals have a proven record of maintaining their value in the face of any contingency that might threaten the worth of a nation’s fiat currency.
  4. Despite not having a fixed ratio, the gold-silver ratio is still a popular tool for precious metals traders.

Some investors prefer not to commit to an all-or-nothing gold-silver trade, keeping open positions in both ETFs and adding to them proportionally. This keeps the investor from having to speculate how to buy shares in the uk on whether extreme ratio levels have actually been reached. The gold-silver ratio, also known as the mint ratio, refers to the relative value of an ounce of silver to an equal weight of gold.

Gold / Silver Ratio Guide

So most of the gold ever mined in history still exists in someone’s hands somewhere. Boom areas in recent years have been electrics, soldering alloys and especially photovoltaic cells for solar energy. After 2018’s new record global spend however, the PV boom may have peaked for the time being, as China and India join Europe in pulling back subsidies for new solar panel installation. Such heavy speculation in silver contrasts with its solid and steady demand from the industrial sector.

The advantage of pool accounts is that the actual metal can be attained whenever the investor desires. This is not the case with metal ETFs, where very large minimums must be held to take physical delivery. It can be a better financial decision to gain exposure to gold through funds and the stocks of gold companies. Options have a time decay component that will erode any real gains made on the trade as time passes and the options contracts approach expiration. Therefore, it could be best to use long-dated options or LEAPS to offset this risk.

For the hard-asset investor concerned with the ongoing value of their nation’s fiat currency, the gold-silver ratio trade offers the security of knowing, at the very least, that they always possess the metal. Exchange-traded funds (ETFs) offer an accessible and simple means of trading the gold-silver ratio. Again, the purchase of the appropriate ETF—gold or silver—at trading turns can be used to execute your strategy.

A 2008 buy of 80 ounces of silver against a short sell of one ounce of gold would have resulted in a profit of $1,520 in silver against a loss of $550 in gold, for a net profit of $970. Many modern-day gold and silver bullion buyers and traders use the fluctuating Gold Silver Ratio to determine which precious metal may be poised to outperform the other. During the 19th century, the United States was one of many countries that adopted a bimetallic standard monetary system, where the value of a country’s monetary unit was established by the mint ratio.

There are a number of ways to execute a gold-silver ratio trading strategy, each of which has its own risks and rewards. That’s because the relative values of the metals is considered important rather than their intrinsic values. One estimate in the early 2000s said the above-ground stockpile of gold could meet more than 6,600 days of demand.

Trading the Gold-Silver Ratio

Many bullion buyers today fully expect gold and silver bullion to continue their 21st Century Bull Markets and possibly each respectively reach five and triple-digit fiat US dollar values per troy ounce within the coming decades. When silver performs best versus gold in recent history is often during timeframes in which fiat currencies and their enduring values are most acutely called into question by the investing masses. Many bullion buyers, including ourselves, believe another era of fiat currency faith loss will come to fruition soon enough. There’s an entire world of investing permutations available to the gold-silver ratio trader. What’s most important is that the investor knows their own trading personality and risk profile.

Exchange-Traded Funds (ETFs)

Almost 60% of silver’s annual demand now comes for productive uses, versus barely 10% for gold. Logarithmic scale charts like the one above are nonlinear scales often used when there is a broad range of quantities like we have for various potential Gold Silver Ratio levels ahead. You can learn more about the respective fundamental investment factors for both gold investing and silver investing here at SD Bullion. As of December 2020, the gold/silver ratio was about 75, down from 114 in April 2020.

The gold-silver ratio is calculated by dividing the current market price of one ounce of gold by the current price of one ounce of silver. Gold has traditionally been viewed as a “safe haven” by investors, especially at times when currency markets and shares are experiencing high rates of volatility. Silver on the other hand has considerably more industrial uses, so its demand depends on the health of the global economy. When the Gold/Silver Ratio rises, it means that gold has become more expensive compared to silver, and the cheaper metal might offer better value. It hit a new all-time high above 125 in March 2020 when the Covid Crisis saw gold investing jump but crushed the silver price, along with most other industrial commodities, as world economies went into lockdown. The gold-silver ratio is calculated by dividing the current price of gold by the current price of silver.


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