Unpicking the jargon
Recently, I highlighted the gold/silver ratio and what it potentially meant for silver prices. So, what is the gold/silver ratio for those who don't know?
What is the Gold/silver ratio?
The Gold/Silver ratio measures the relative strength of gold versus silver prices. It shows how many ounces of silver it takes to purchase one ounce of gold.
To get this number, you divide the current gold price by the current silver price.
When you have done this you now have the Gold/Silver Ratio. It is a simple way to see which of the two metals is gaining value relative to the other.
The meaning of the ratio
Whenever the Gold/Silver Ratio rises, it means that gold has become more expensive compared to silver. See the gold/silver ratio chart below:
On the other hand, when the ratio falls, it means gold has become less costly relative to silver. See chart below:
Some analysts, traders and investors look to "trade the ratio", buying silver when the Gold/Silver Ratio is high and switching to gold when it falls. So, the next time you hear mention of the gold/silver ratio you will now know what the significance is. Recently, I mentioned the ratio because the ratio has been high (around 90) and that means silver looks better value than silver should safe haven flows into precious metals continue.
