Does the Gold-to-Silver Ratio Matter When Buying Physical Precious Metals?

What is the Gold-to-Silver Ratio?

According to our friends at Investopedia, the Gold-to-Silver Ratio, also known as the mint ratio or Gold-Silver ratio, might not be a common term or option as it comes to casual investing in either gold or silver. Generally speaking, many traders go on the numbers alone, consider their investments based on very specific market indicators and potential futures. So, what exactly is the gold-to-silver ratio and how does it come into play?

Specifically, this ratio or number is determined by the amount of silver it takes to buy one troy ounce of gold. To find the gold/silver ratio, simply take the spot price of gold and divide it by the spot price of silver. It’s that simple. 

Why is the Gold-to-Silver Ratio Important When Buying Precious Metals?

The Gold-to-Silver Ratio, or GSR, is actually quite important as it comes to managing one’s investments in precious metals. This ratio is considered when an investor is trying to determine trades related to precious metals. Depending on which way the ratio leans, one can evaluate the conditions of the market and consider whether a recession is near, or some inflationary period is on the rise. 

The idea behind using the gold-to-silver ratio as it comes to trading is to switch holdings as the market dictates. It’s a matter of converting from one precious metal to the other when the value of one gains or loses ground against the other. It can be tricky which is why this method is more often practiced by experienced traders. 

Under these circumstances no actual dollar value is considered when shifting from gold to silver or from silver to gold. That’s because the market resale value of the metal is unimportant as it comes to this particular trade. The focus is entirely on one metal’s value against the other.

Also, consider how the dollar historically stands against precious metals like gold and silver. According to Money Week, the price of gold 50 years ago hovered around $35 an ounce. Today, one would have to drop about 50x this in dollars to collect on a single ounce of gold. So, as it comes to employing this ratio in regard to finding gains in your portfolio, the dollar doesn’t come into play.

The Gold-to-Silver Ratio Trading for You?

Despite the clear and obvious fluctuations in the marketplace, the gold-to-silver ratio is a popular tool for many who trade precious metals. If you want to take advantage of this, Hero Bullion is one of the only sites that publishes the gold-to-silver ratio chart. This method is often used as a way of leveraging one metal against the other. Traders can take a long position with one metal while keeping a short position with the other until the market suggests some reversing trend. 

As well, investors who hold a keen eye to the precious metals market can and often do make a profit using the gold-to-silver ratio even if both gold and silver slip in value. The gold-silver ratio is also very useful when the market, or the opposing values, are at extremes. It’s just a matter of due diligence, learning the method and applying a little know-how. 

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