Editor’s Note: With the Gold/Silver Ratio at current high levels, we wanted to share with you some of our insights about what this ratio means for investors. Today’s article was originally published in our August 2017 issue of Information Line. Although this article was published five months ago, we’ve updated the numbers, as it appears this pattern is reemerging and is something we suggest you consider carefully.
What Does the Current Gold/Silver Ratio Mean for You?
By Rich Checkan
Simply put, now might be one of the best times to buy gold and silver in the near future.
Let me explain…
The Gold/Silver Ratio (GSR), which reflects the amount of silver its takes to purchase one ounce of gold, fluctuates depending on the current value of gold and silver. If you’re looking to invest in either precious metal, monitoring the GSR for its highs and lows could impact your investment significantly. Historically, whenever the GSR has soared to highs above 70, investing in gold and silver has been quite fruitful.
Right now, the GSR hovers around 76, which means it takes approximately 76 ounces of silver to buy one ounce of gold. At times like these, when silver is highly undervalued compared to gold, there is typically a rush to take advantage of lower prices in the silver market.
In contrast, when the GSR drops into a range from 35 to 50, there is commonly a rapid surge in silver selling. At those times, when the GSR is at its low point, the price of gold is cheap compared to silver. In April 2011, for example, the ratio plummeted to a low of 32.4! At this ratio, silver was selling for $48 per ounce and gold for $1,500 per ounce. At those prices, it’s easy to see why investors were eager to sell silver. The ratio took an even larger plunge in 1980, when it dropped to around 18!
As mentioned above, due to the extreme levels of the current GSR, both gold and silver are incredible buys right now. At these lofty GSR levels, the market is signaling the low-point for both gold and silver prices.
Generally, silver tends to be more volatile than gold, thus resulting in comparatively larger moves up and down when market forces are active. On the whole, silver usually follows the movements of gold; however, it will occasionally gain strength on gold due to its numerous industrial uses. More importantly, silver is a much thinner market than gold. So, the same dollar has a bigger impact in the silver market than it does in the gold market.
Therefore, silver follows its leader—gold, but silver will invariably out-pace gold as they both move the same direction—either up or down.
A careful look at the above chart reveals that historically, the ratio is higher when the precious metals market isn’t performing well. This is exactly the point where we find ourselves today.
The Magic Number
When you see us talk about the GSR, we typically mention a ‘magic number’ of 80 for the ratio. The GSR has only reached 80 four times in the past two decades—the most recent occurrence was March of 2016. Toward the end of 2017, the GSR did come close to 80, reaching a high of 79.58, but it has yet to come back down to normal levels. Each of the three previous times it did reach 80, the ratio responded by correcting downward roughly 40% to 60%! This effect was the result of silver outpacing gold as both gold and silver prices rose from the lows.
In the chart mentioned above, you will notice that the timespan between the four instances that the GSR reached 80 is about 6 to 7 years. The time the GSR took to fall 40% to 60% after reaching 80 was roughly 2 to 3 years.
What Does This Mean for You?
Generally, it’s important to consider three courses of action when choosing to invest when the GSR is high…
- Insurance—If your overriding objective is to buy precious metals for insurance, consider buying some insurance—gold.
- Speculation—Considering the volatile nature of silver, with wider swings to the downside followed by wider swings to the upside, profit-motivated precious metals buyers may consider purchasing some silver.
- Trading—Historically, this is the most common use of the GSR indicator. Traders will look to the height of the GSR—near this ‘magic number’ of 80—to sell some gold and buy some silver with the proceeds. Then, when the GSR hits new lows, they sell the silver and buy back gold.
If insurance is your prime motivator, buy both gold and silver… but weight your purchase toward gold.
If profit is your prime motivator, buy both gold and silver… but weight your purchase in favor of silver.
If you’re looking to silver as an investment while the GSR is at these high levels, we can now offer you junk silver for as low as Spot + 49¢ per ounce*. You can also choose from random date 1-ounce gold American Eagles for as low as Spot + 3.99% per ounce*.
For that reason, right now may very well be one of the best times for you to buy gold and silver in the next few years.
To learn more about how you can profit from the current GSR, call us at 800-831-0007 or email us to discuss your options.
*Prices subject to change based on market fluctuation and product availability. Prices reflected are for cash, check, or bank wire. Free shipping, handling, and insurance are available for gold American Eagle purchases of 10 ounces of more or $1,000 Face Value or larger purchases of junk silver. Offer expires Friday, January 12, 2018.