Gold-Silver Ratio Strategies

Investing in precious metals like silver and gold can provide huge opportunities if done wisely. Investors have long used gold as a kind of “hedge”, saving wealth during booms or when geopolitical or economic risks arise. Silver, which works as a hybrid of industrial and precious metals, often gains when gold does, but also rises in price when production is high.

But there’s also a way to find profit in the relationship between gold and silver. There are indicators that can help you choose right.

Gold-Silver Ratio

The gold and silver rate compares the amount of silver required to buy a unit of gold.

So, for example, if it would take 75 ounces of silver to buy an ounce of gold, the ratio would be 75. Keeping an eye on the ratio of gold and silver can provide valuable information about the two precious metals, which can be used to your advantage.

Gold is viewed as a global currency, silver on the other hand, is mostly used in industrial applications. This means that, while the price of gold and silver is often correlated, there is little room for variations in direction.

When the value of currencies change, or the stock market becomes more volatile, gold is the go-to commodity for a lot of investors. This is one reason why so many people will buy silver bullion or gold to protect their wealth.

When something happens that drives more people to look at investing in gold, there is a squeeze in the supply and demand outpaces supply. Meanwhile, demand for silver continues to grow, as this metal is used to manufacture a wide variety of items.

The problem is that silver mining has pretty much stopped. However, mining yields are in decline, and the cost to find and extract this metal has grown. Regardless of the technological advancements that have been made we may not be able to produce the precious metals at the current rate, or a higher one. There will only be a decline.

Many geopolitical and other global events factor into the prices of either gold or silver:

• An increase in interest rates will result in a decrease in gold prices.
• During a recession, industrial activity goes down and industrial metals like silver become more available. When the demand is low the price of the metal also goes down.
• Wars, inflation, and stock market crashes is typically good for the gold price.

How to trade on the Gold-Silver Ratio

There are different ways that you can take advantage of the value difference between gold and silver. The silver-gold ratio can help you decide when to move between the two commodities when there is a shift in the markets. If one is cheaper, you can sell the more costly one and proceed to buy the cheaper metal. When the ratio changes direction, you can do the same. That is if silver is cheaper than gold, you can sell the expensive gold and buy silver bullion. Knowing how to use the ratio correctly can be very profitable. When you understand the relationship between the two metals you will always find opportunities to make some money.