The Gold Silver Ratio measures the number of ounces of silver required to purchase one ounce of gold. This ratio is used by investors to gauge the relative value of silver to gold, helping them make informed decisions about buying or selling these precious metals. Historically, the ratio has fluctuated significantly due to changes in supply and demand, economic conditions, and monetary policies. For example, during the Roman Empire, the ratio was fixed at 12:1, while in modern times, it has varied widely, reaching as high as 114:1 in April 2020 and as low as 31:1 in April 2011. The gold/silver ratio has seen significant volatility in recent years:
- In 2020, the ratio peaked at 114.77, the highest since 1915.
- As of December 2020, the ratio was about 75, down from the peak earlier that year.
- The ratio reached a low of 31 in April 2011.
Over the past few decades, the ratio has mainly ranged between 50:1 and 70:1, with occasional spikes above that range.
Investors can use the ratio to inform their precious metal allocation. A popular strategy is the “80/50” rule, which suggests switching to silver when the ratio exceeds 80 and back to gold when it drops below 50. Historically, this approach has allowed investors to multiply their metal holdings by capitalizing on the relative undervaluation of each metal at different times.
