The Gold-to-Silver Ratio Is Hovering Around 90: What is It and Why Does It Matter?

For seasoned investors, the gold-to-silver ratio is one of many indicators used to circumscribe the right (and wrong) time to buy or sell their precious metals.

Other factors, including – economic uncertainty, inflation frenzy, and debt – have prompted millions to invest in gold and silver.

Still, to so many, the gold-to-silver ratio remains a perplexing, baffling mystery. Many (like myself) have never even heard of it! This information was out there and yet I hadn't heard a single peep about it... EVER!

So what is the Gold-to-Silver Ratio and why does it even matter?

Good question.

First, a simple definition: The gold-to-silver ratio is the amount of silver it takes to purchase one ounce of gold.

At the time this was written, the gold-to-silver ratio stood at approximately 88 to 1. That means, at the current price, it would take 88 ounces of silver to buy 1 ounce of gold.

While there are countless websites providing the current ratio, it’s relatively painless to calculate on your own. Simply take the price of gold, divide it by the price of silver and Voila! You have the gold-to-silver ratio.

Here is an example of using recent market prices:

$1,497.11 (gold price) ÷ $17.53 (silver price) = approximately 88+ (Gold-to-Silver Ratio)

Thanks for the information, but what does it really mean?

Investors who trade gold bullion, silver bullion and other precious metals scrutinize the gold-to-silver ratio as a signal for the right time to buy or sell a particular metal.

When the ratio is high, the general consensus is that silver is favored. This is because, relative to the ratio, silver is somewhat cheap.

Conversely, a low ratio tends to favor gold and maybe a signal it’s a good time to buy the yellow metal. Many large-scale, experienced investors will trade their silver for gold once the ratio drops.

So the take away from all of this information; Invest in Silver. When the silver to gold ratio is high trade your gold for silver. Once the ratio fluctuates (usually over a few years) and is closer to each other you trade your silver for gold.

If you traded 1 ounce of gold for 88 ounces of silver now, the in a few years when the gap closes you will have 88oz of silver and it will only take (potentially) 35 oz to equal an oz of gold... meaning you could nearly triple your investment by trading your silver back for gold.

What you will have in an ever-expanding investment of precious metals.

In 2011 it was around 30 for the ratio gap. Meaning, less than ten years and a triple in investment.