The gold/silver ratio is what investors use to determine if it is an optimal time to purchase gold or silver depending on the market. It is the actual amount of silver it will take to buy an ounce of gold. It is also used to diversify an investor’s precious-metal holders. The value of gold is something that does not go away, like the value of oil, which is consumed. Gold cannot go away or be used up; it can be melted down and used over and over again with a recoverable value. Gold is considered the safe way to invest, because gold is stable and has held its value over the years.
Calculating the gold-to-silver ratio is not very difficult. If the value of an ounce of gold is $1000 and the value of an ounce of silver is $20, the ratio is 50:1. If the ratio is high, it means that silver is the favored metal to buy at the time. Of course the opposite is true, if the ratio is low, it is time to purchase some gold. This ratio fluctuates quite often and only seasoned investors should try to make money on this fluctuation. Trying to sell and coordinate ups and downs in the precious metal business is complex and not to be taken lightly.
Historically, the gold-to-silver ration was much lower than it is today. It was around 16 during the 1900’s and it was possibly due to many countries using gold and silver and there being much more silver in the Earth’s crust than gold. Based on the actual supply of gold and silver, the ratio should be 20:1. However, the supply is not what is setting the rates, which is actually the demand. Gold is supposedly about to top out at its highest and start trending downwards in the coming years. Learning when to cash out and when to buy in can affect the growth and value of your portfolio.
The silver is proposed to grow in the coming years, mainly due to its use in electrical and electronics. Gold is not used in these sectors and the demands are much higher for silver. Learning when to cash out and when to buy in can make significant increases in your portfolio. If you see where the world is trending, you can see that renewable energy is very important. Silver is found in solar panels and is used in medical grade equipment. Both of these fields are booming and this seems to imply the silver market will increase because demand for silver will increase. Gold is mainly found in jewelry and some electronics and dentistry. However, because of the cost of gold, many people have decided to use an alloy rather than the real thing. Based on the trends in the world today, it seems as if the gold-to-silver ratio is going to be fluctuating in favor of silver.
As long as the economy is not in a recession and we are trending towards less unemployment and better jobs, the economy will grow and therefore the ratio of silver will actually decrease in comparison to gold. As supply is needed the demand will also increase. The use of silver in everyday items increases its popularity and need in the world and will help to balance the major differences in the precious metals market. The gold-to-silver ratio may revert back to the levels we saw in the early 1900’s and become much closer in their values.
Monitoring the market and the fluctuations of the values of gold and silver is a wise choice. Determining when to buy in and what precious metal to choose depends on the market for that metal. Gold and silver are valuable metals that will not lose significant value, but if the market is very low it may be wise to hold onto those metals and not consider cashing in. This is why it is important to diversify your investments and have stocks in other things, so if one component goes bad you don’t lose everything. Gold-to-silver ratios can change and you should be able to grow and adapt to these changes if you plan on being successful.