The Gold / Silver Ratio Is Important To Investors..Here's Why
Updated: Nov 19, 2019
The gold and silver ratio?
If you're someone who is looking to dip their toes into the world of gold investing, or even silver investing, you'll want to hear about the gold/silver ratio. This is a ratio that helps determine the value of each precious metal, and understanding how it works, can help you when it comes time to buy or sell.
We know that gold investing can be a tricky investment, because not everyone is educated on how to do this properly. Luckily, today, we'll be showing you everything you need to know about the gold/silver ratio.
If you ever feel overwhelmed, or a bit more on the confused side, please feel free to read each section as many times as you need. We'll be going over a lot, but here is a quick summary of the points we'll be showing you:
What exactly the gold/silver ratio is (with an example).
The history behind the ratio and why this ratio is crucial for investing.
So without wasting any more of your precious time, let's put our thinking caps on, and take a look.
What exactly is the gold/silver ratio?
When it comes to gold and silver, as you may already know, the value is much different. Gold is worth quite a bit more than silver, and this number actually changes depending on the market. This is why the gold/silver ratio is important, and you'll want to stay focused, because we'll be touching on that later as well.
What is the ratio?
The ratio is not exactly that complicated, and to be quite honest with you, it's really simple once you understand it. When it comes to purchasing gold or silver, a common method to do so is in ounces. Therefore, instead of buying pounds, most precious metals will be sold by the ounce.
The ratio, in this case, is how many ounces of silver is equal to one ounce of gold. So if you have 75 ounces of silver, and that's only equal to one ounce of gold, the ratio is 75 to 1. Starting to make sense so far? So let's take a look at an example with an actual monetary value tied to it, and take a look at how you would break it down.
If an ounce of gold was selling for about $1,000, and silver at $20 (also per ounce), what would that ratio look like?
This might seem like an extreme example, but based on market trends over the past decade, the ratio is actually the average (but on the low side). In this case, the ratio would be 50 to 1, because you would need to sell 50 ounces of silver, at $20 per ounce, in order to purchase one ounce of gold at $1,000. Pretty simple right?
So when it comes to the gold/silver ratio, all we're looking at is how much silver it would take to purchase one ounce of gold (or vice versa).
How did it come to be?
In the past, this was not always the way the ratio worked. This is due to the fact that gold and silver values were set by governments in the past. Remember the gold standard? Therefore, in the past, the ratio did not fluctuate all that much.
This was put in place by governments for the sole purpose of keeping prices level, and making sure that they had a bit of control over the market. When this was common practice, the ratio was not all that important, because the value was not volatile.
When the gold standard was abolished, and the US dollar was no longer backed by gold, something interesting took place. Now, instead of governments dictating the value of gold, the market did. This created investment opportunities, and has made the gold/silver ratio much more relevant. While it's relatively more stable than most other markets, that doesn't mean there is no opportunity for profit. So don't go anywhere, because we'll be going over that opportunity in the next section.
In the past, the ratio didn't mean all that much. Once gold was no longer backed the US dollar, the market started to decide its fate. This is what created a focus on the ratio, and has led to gold investing opportunities.
Why is the gold to silver ratio relevant for investing in 2020?
Now that you know a bit about the gold/silver ratio, and what it's all about, we can start to show you the best part. The Investing aspect. The gold/silver ratio provides a great investment opportunity, so let's take a look at exactly why.
How is this profitable?
If you're a bit confused about how the profit aspect may work, let's take a quick look into how this whole process works. Once you get it, you'll start to see why you might want to pay attention to this ratio, especially when the market becomes more volatile.
If you hold an ounce of gold, and that ounce of gold is worth 50 ounces of silver (a 50 to 1 ratio), you'll want to keep an eye on that number. This is due to the fact that once that ratio changes, you stand to make a profit. For example, if the ratio becomes 100 to 1, it might be time for you to trade that gold for silver.
This is due to the fact that once the ratio creeps back down to 50 to 1, you'll be able to trade that silver back for two ounces of gold this time. See how that works? Pretty simple right? When it comes to ratios, you want to make sure that you keep an eye on fluctuations, because it can net you some serious gains in the gold and silver market.
It's not difficult to make some money off of the gold and silver ratio, and as 2020 approaches, it can be a good idea to thrive off of the volatility it may bring with it. Plus, the market always fluctuates, so this will always be a relevant way for you to invest.
We definitely went over a lot today, so if you find yourself lost, always feel free to refer back here as a guide. When it comes to gold investing, the gold/silver ratio is always something you should keep in mind.
While it may not have been super relevant in the past, the volatility of the precious metals market has made the gold/silver ratio extremely relevant.
It's not that complicated once you understand how the numbers work, and to be frank, the same basic trading rules apply. Buy low and sell high, and always wait for the right ratio.
2019- Our opinion, even though we love gold....NOW is the time to buy silver. The Gold Silver Ratio helped guide us to this conclusion. Study it.
Now that you know the facts, how will you invest in gold or silver? If you decide that a Gold or Silver IRA or a Gold or Silver 401k rollover or transfer may be right for you and you want to learn more we encourage you to request more information from Regal Assets. They will send you a free, no hassle Silver or Gold Investment kit once you click on the link below.
To see a review on Regals Assets, visit our site at GoldIRAs101.com We personally use these guys for our investments.
The Gold IRAs 101 Team