Gold: Silver Ratio
The gold: silver ratio is the proportional relationship between the respective spot prices of gold and silver. Put simply this describes how many ounces of silver can be bought with one ounce of gold. Gold has always been more expensive than silver, however if the ratio were to fall below 1 this would no longer be the case. This is not a fixed ratio, and changes regularly depending on the current spot price of the metals. While their price movements are often influenced by many of the same factors, namely inflation and general sentiment towards other investments, their prices don’t always move at the same rate. As such the relationship between the two precious metals has varied a lot throughout time.
5 Year Ratio
Although it is not guaranteed, the ratio will usually rise during precious metals bear markets, meaning the gap between their values widens, and fall during bull markets, meaning gold becomes less valuable in relation to silver. This is because silver is typically a much more volatile metal than gold, so its price will experience radical fluctuations depending on the nature of the market.
The 5 years between 2011 and 2016 are a perfect example of this. Since 2011, when the silver price peaked, the ratio has more than doubled. In April 2011 an ounce of gold was worth around 31 times more than an ounce of silver, as of February 2016 that ratio has reached almost 80: 1. While the price of both of these metals has dropped significantly since then, silver has fallen to almost a third of its 2011 value, falling from around £29 per ounce to just over £10 per troy ounce in 2016. To put the current ratio into perspective, it was possible to buy more than 70 x 1kg silver bullion bars for the same amount of money as a 1kg gold bullion bar. The volatile nature of the silver price is the main reason behind the ratio’s tendency to fluctuate to such a great extent.
While this was not the highest the ratio has ever been, the value of silver has rarely been so low compared to gold. This made silver a potentially attractive investment in 2016, as its price was currently very cheap in relation to gold, and it makes it attractive again in 2018 with the gold-silver ratio the widest since 2008.
Based on historical trends it is possible that, should precious metals experience another boom, the silver price could soar, tightening the ratio significantly.
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