Why Is Silver Cheaper Than Gold?

The diviner of light and gravity, the father of calculus and creator of modern astronomy got his sums wrong when – after leaving academia to run England’s coinage as Master of the Mint at the Tower of London – he proposed a new price for gold Guineas in terms of silver shillings. There is thought to be around 16 times as much silver in the Earth’s crust than gold, leading some to argue that the ratio should also therefore be 16. Others believe the ratio should be even lower because much more silver is produced than gold. If you are looking for the best value, generally our One Kilo Bars or our One Ounce Silver Coins are the cheapest way to buy silver bullion. For example, a gold level of $1,500 and a gold/silver ratio of 80 to 50 suggests silver being valued between $30 and $18 per ounce.

gold/silver ratio

It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. As of 7 February 2019, gold was trading at roughly $1,306 per ounce while the price of silver was just below $16,00.

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Throughout 2020, the risk aversion tendency in the markets of all asset classes has pushed the price of silver to its lowest level since 2009, causing it to fall below $12 per ounce, which has sent the gold/silver ratio to a new all-time high. Investors who believe that fiat currencies cannot increase their purchasing power of gold and that the gold/silver ratio tends to revert to its mean can calculate the value of silver based on the price of gold. In more recently the highest the ratio has reached id 97.3 to 1 in February 1991 , at the height of a global economic recession. After this high in the ratio, the silver price rose in a continued uptrend from an average price US$3.74/oz in February 1991 to US$6.84/oz in February 1998, an increase of 83%. 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 high price of gold relative to silver could position silver to break out and chase gold higher as COVID-19 tightens its grip on the global economy.

On the other hand, a high gold/silver ratio of 120 to 90 suggests a value between $12.50 and $16.60. Negotiating the gold/silver ratio makes sense for those concerned with devaluation, deflation and monetary replacement. Precious metals have a proven track record of maintaining their value in the face of unforeseen events that could threaten currency value. The ratio is used by investors as a gauge of the relative valuation of the two metals, which can help inform buy and sell decisions.

Silver Can Be A Good Investment

Newton’s infamous ‘error’ of 1717 didn’t, therefore, put England and the world on gold “inadvertently” over the following century, or not as the common history believes. The shift was immediate and deliberate, if not fully understood at the time. What Newton’s secret police tactics failed to stem, however, was the outflow of silver abroad.

Does It Still Pay To Invest In Gold?

There is no ideal gold-silver ratio, although history gives us an idea of what has been considered suitable in the past. Enhance your trading performance or learn to trade with City Index’s videos and tutorials. The Gold Reserve Act of 1934 purchased virtually all privately-held gold and restored the U.S. dollar’s peg to gold at a higher level. The gold standard is a system in which a country’s government allows its currency to be freely converted into fixed amounts of gold.

How To Calculate The Gold Silver Ratio

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation. For example, if the ratio then continued to fall below 50, then it would be uneconomical for the trader to turn there two ounces of gold back into silver and they would have to wait until the ratio returned significantly above 50. This is why this strategy works best when the ratio is at the extreme end of the historical range. If the ratio is above 100 then it is far more likely to fall lower than head higher, and when it is below 50 it is far more likely to rise than decline further.

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Precious metal traders can use this ratio to diversify their trading portfolios. One investor notices the ratio is at 80, high compared to the historic average. A few years later, the ratio has fallen to 20, low compared to the historic average, and the investor can trade their 80 ounces of silver for four ounces of gold, quadrupling their original investment. Repeating this would build up an investor’s overall inventory of gold and silver as they switch from one to another depending on whether the ratio is high or low.

Find Out Everything You Need To Know About The Gold

When the ratio rises, they invest in silver ETFs and when it falls, they invest in gold ETFs. The gold-silver ratio indicates how many ounces of silver are required to buy one ounce of gold. In time periods where the ratio is relatively high, it acts as leading indicator for a rise in silver’s value. This information has been prepared by IG, a trading name of IG Markets Limited.

How To Trade The Gold Silver Ratio

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 67% of retail investor accounts lose money when spread betting and/or trading CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money. Because gold and silver prices change based on the law of supply and demand, the gold/silver ratio has fluctuated over time. Before the adoption of the fiat currency system, national currencies were often backed by gold or silver. This meant the gold/silver ratio was far more stable in the past than it is today.

Time To Call In The Magician

April 2011’s level of 35 was, in contrast, “unsustainable”, according to several analysts (including David Jollie, then at Mitsui and now at Anglo American Platinum, whose 2016 article ‘Branding silver’ in Alchemist No. 80 is well worth rereading) – a forecast that soon came good. With silver nearing its record cash price of $50 per ounce, gold showed its cheapest valuation since 1983 in terms of its once monetary sister, dipping to 31 times the silver price before rising to 45 times by the time gold set its own financial crisis peak at $1,920 four months later. The ratio has since averaged 72, marking a sustained derating of silver and culminating with gold jumping to a spectacular peak in relative value during this spring’s COVID crash, when the looming virus pandemic spurred panic across all finance and commodity markets. The gold/silver ratio represents the number of ounces of silver required to purchase a single ounce of gold.