The Gold to Silver Ratio Explained
Precious metal investing is appealing for multiple reasons. It could boast a large potential for profits. But, an informed approach is needed for this. One area that could help is the gold to silver ratio. It offers insights on the market.
Benefits of using the gold to ratio include determining when to buy, for how much, and more. It can be a relatively confusing ratio, though. It’s worth going through what it is and how helpful it is.
What is the Gold to Silver Ratio?
At its core, the gold to silver ratio tells you how many ounces of silver are needed to buy an ounce of gold. This follows a traditional formula: Gold to Silver Ratio = Price of Gold ÷ Price of Silver.
If, for example, gold trades at $2,000 per ounce and silver trades at $80 an ounce, then the ratio is 80:1. It’ll take 80 ounces of silver to buy one ounce of gold.
What High and Low Readings Mean
Depending on the market, you can get various readings for the ratio. These are usually:
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High Ratio (80:1 or more): Gold is expensive compared to silver.
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Low Ratio (40:1 or lower): Silver is more expensive compared to gold.
It’s worth noting that this shouldn’t be the only indicator of where the market’s going. It’s best used alongside several other factors.
Key Drivers Behind the Ratio
The gold to silver ratio can be influenced by more than a few factors. While there are many of these, some affect it more than others. Some of the more notable are:
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Real interest rates.
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Strength of the U.S. dollar.
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Industrial demand for silver and gold.
These can swing the ratio one way or another, depending on how the market’s doing.
A Look at History and Ranges
The gold to silver ratio has been around for thousands of years. From the Roman Empire up until relatively recent centuries, this was at a fixed rate. It was only in 1971 when it began to float with the markets, though.
There have been more than a few wide swings with this:
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Silver spiked in 1980 to 17:1.
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Another spike to about 100:1 in 1991, signalling silver’s undervaluation.
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Touching 100:1 again in 2020 during the COVID-19 pandemic.
How Investors Use the Ratio
Tracking the gold to silver ratio and keeping its fluctuations in mind can be a key part of investing in precious metals. But, how exactly do investors use the ratio? This mainly revolves around helping to inform their investment strategy.
It can be split into several ways:
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Switching Strategy - Selling gold to buy silver when the ratio is high, and doing the reverse when it’s low.
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Portfolio Balance - Using the ratio to diversify across precious metals.
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Timing Purchases - Deciding whether to buy, or sell, gold or silver during specific time frames.
While this isn’t exactly foolproof, it can be a helpful part of creating an investment strategy. The gold to silver ratio can inform when to buy and more.
Costs and Risks to Consider
While trading using the gold to silver ratio has its benefits, it also comes with its costs and risks. The most notable of these are:
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Transaction Cost - Premiums on transactions could erode any potential profits.
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Storage Fees - For any physical precious metals, there could be storage fees.
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Market Risk - The ratio could be ‘imbalanced’ for quite a while.
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Volatility - Silver can be a lot more volatile than gold.
These should always be kept in mind when using the ratio.
Where to Track the Gold to Silver Ratio
Tracking the gold to silver ratio can be an integral part of being a precious metals investor. Doing this doesn’t have to be complicated. At Bullion Hub, we make it as easy as possible and give you all of the tools to help you do this, and more.
Add in platforms like investing publications, and there’s no reason why you can’t track the ratio quickly and easily.
The gold to silver ratio is a valuable tool for investors focusing on precious metal. By being aware of the gold to silver ratio, they better understand when to buy these, and even sell them. While it doesn’t provide guaranteed buy or sell signals, its history and swings make it a helpful indicator of potential value opportunities.
At Bullion Hub, you can explore live gold prices and silver prices, compare ratios, and make informed decisions about your precious metals. You can find out more about the gold to silver ratio, when to buy, and more.
If you're interested in more pricing data, check out our 2025 price predications for silver and our price predictions for gold.