The gold/silver ratio
The gold/silver ratio shows how many ounces of silver one ounce of gold can buy. It sums up in one number how expensive or cheap the two metals are relative to each other. The ratio has moved within a very wide range over the decades, and reaching an extreme does not mean it will come back.
What is the gold/silver ratio?
The ratio is the price of one ounce of gold divided by the price of one ounce of silver. Both prices are taken in the same unit (usually the dollar price per troy ounce), so the result is a plain number. For example, if gold costs 70 times as much as silver, the ratio is 70: one ounce of gold buys 70 ounces of silver.
When the ratio rises, gold has become more expensive relative to silver; when it falls, silver has done better than gold. Gold does not have to rise for the ratio to rise: if both metals fall and silver falls more, the ratio still goes up. The ratio measures relative performance, not direction.
Why does the ratio move?
- A large share of silver demand, roughly half or more, comes from industry (electronics, solar panels and so on). For gold that share is much smaller. So silver is more sensitive to expectations for economic growth.
- Gold is held more as a store of value and a reserve asset. In periods of uncertainty and weaker risk appetite gold tends to hold up relatively well, and the ratio often rises in those periods.
- The silver market is much smaller in value than the gold market. The same size of money flow can move the silver price more.
- Silver is usually more volatile than gold. In strong rallies it can rise faster and pull the ratio down; in sharp falls it can drop further and push the ratio up.
These effects are tendencies, not rules. Which factor is driving the ratio at a given time can only be judged by looking at the conditions of that period.
A wide range over history
The ratio has sat at very different levels over the decades. In the last fifty years it has been below 20 and above 100. For long stretches it has moved within a broad middle area between those two extremes.
That history weakens the idea that the ratio has a "normal" level. The "average" depends on which period you take, and the average itself can drift over time.
"Mean reversion" readings
When the ratio nears one end of its historical range, people often say it will "revert to the mean". The same extreme reading can lead to different outcomes.
The ratio comes back
After the extreme, the relative performance of the two metals changes and the ratio moves back towards the middle.
The ratio stays extreme
The conditions driving the ratio persist and it stays in the extreme area for a long time, or moves further away.
The average shifts
The ratio does not come back; over time a new range forms and the old average stops being a useful reference.
What it shows, what it does not prove
What it shows
- How expensive or cheap gold is relative to silver
- The relative performance of the two metals over a period
- Where the ratio stands against its own history
What it does not prove
- That the ratio will return to its average or to any given level
- That gold or silver on its own will rise or fall
- When a reversal will happen, or which metal's move will drive it
The MarketLevelMap view
How it relates to zones
The ratio's chart can be read like a price chart: levels where it reacted before can be seen as support and resistance zones. Rather than a single number such as "the ratio turns at 80", it is more realistic to read the area where the ratio slowed or turned before as a band.
An extreme ratio does not replace the zones on the gold or silver chart. Each metal's own support and resistance zones are read separately; the ratio adds relative context to that reading.
Often confused with
- Real rates and the dollarReal rates and the dollar mostly affect the gold price itself; the ratio measures how gold and silver move against each other.
- What is volatility? Contracting and expanding rangesSilver's higher volatility is a major source of the ratio's moves, but the ratio shows relative price, not volatility itself.
For general information only. Not investment advice.Last updated: