The Gold/Silver ratio: a buy signal?
How to use the price relationship between gold and silver to arbitrage your investments.
The Gold/Silver Ratio (GSR) expresses how many ounces of silver it takes to buy one ounce of gold. If gold is at 2,900 USD and silver at 32 USD, the ratio is 2,900 ÷ 32 = 90.6.
Historical References: Under the 19th-century bimetallic standard, the ratio was legally fixed at 15.5 (France) or 16 (USA). The average since 1990 is about 65. Since 2000, the peak was 125 (2020) and the floor 30 (2011).
How to Use It: When the ratio is high (>80), silver is 'cheap' relative to gold. Investors overweight silver anticipating a narrowing of the ratio. Conversely, a low ratio (<50) suggests selling silver and buying gold. It's a rotation strategy, not absolute timing.
Limits of GSR: The ratio can stay abnormally high for years. Moreover, silver has a double nature (precious metal + industrial metal) which partially correlates it to economic cycles — unlike pure gold refuge.
Practical Application: A goldsmith who regularly buys both metals can optimize purchases by rotating stocks according to the ratio. If silver is cheap, buy more silver for your 925 creations and keep your cash for gold when it normalizes.