What Is the Gold Silver Ratio: A Practical Allocation Strategy
Blog about: how can you use the gold-silver ratio for your investment decisions.
The gold-to-silver ratio is a metric used to determine the relative value of silver to gold. It measures how many grams/ounces of silver are needed to purchase one gram/ounce of gold. The ratio is calculated by dividing the current price of gold per gram/ounce by the current price of silver per gram/ounce.
For example, if the current price of physical gold is $2,862 per ounce and silver is $31 per ounce, the gold/silver ratio would be 100 ($2,862 / $31 = 92). This means buying one ounce of gold would take 92 ounces of silver.
The ratio can fluctuate over time depending on supply and demand, economic conditions, geopolitical events, and investor sentiment. Generally, a high ratio suggests that silver may be relatively undervalued compared to gold, while a low ratio indicates the opposite.
Historically, the gold/silver ratio has varied from 15 to 100. The highest-ever recorded gold/silver ratio was in April 2020 when it reached 125.
Why is the gold-to-silver ratio important?
The Gold-to-Silver Ratio (GSR) is important because it helps investors, traders, and economists understand market trends, precious metal valuations, and potential investment opportunities. Here’s why it matters:
1. Historical Indicator of Value
The ratio has fluctuated significantly over time. Historically, it averaged around 15:1 (when silver was used in currency) but has been much higher in modern times, often 60:1 to 80:1.
If the ratio is high, silver may be undervalued relative to gold. If it’s low, gold may be the better buy.
2. Helps with Investment Decisions
Some traders use the ratio to decide when to swap between gold and silver.
High ratio (e.g., 80:1) → Silver might be undervalued, so investors buy silver.
Low ratio (e.g., 40:1) → Silver is expensive compared to gold, so investors may switch to gold.
3. Economic and Market Insights
A rising GSR can indicate market uncertainty, as investors flock to gold (a safer asset).
A falling GSR may suggest economic optimism, as silver demand rises (often linked to industrial use).
4. Inflation and Currency Weakness Indicator
When fiat currencies weaken or inflation is high, both metals tend to rise. However, the ratio can signal which metal is gaining more demand.
The Gold-Silver Ratio as a Tool to Balance Your Portfolio
Deciding how to allocate a portfolio between gold and silver depends on your goals, risk tolerance, and market outlook. Both metals serve as hedges against inflation and economic uncertainty, but they behave differently. Gold is typically seen as a more stable store of value, while silver tends to be more volatile due to its industrial demand and smaller market size.
A common approach is the 60/40 split—60% gold and 40% silver. This balances gold’s stability with silver’s higher upside potential. For a more conservative portfolio, some lean toward 80/20, favouring gold’s reliability. If you’re bullish on industrial growth or expect a metals rally, flipping it to 40/60 or even 30/70 could make sense, given silver’s sensitivity to economic cycles.
Historically, the gold-to-silver ratio—how many ounces of silver it takes to buy one ounce of gold—can guide decisions. As of now, it’s hovering around 80:1, down from peaks above 100:1 in recent years, suggesting silver might be relatively undervalued. But this ratio fluctuates, so timing matters.