The gold-silver ratio, which measures how many ounces of silver it takes to buy one ounce of gold, continues to offer useful signals for precious metals markets, according to a study published in the latest edition of the Silver Institute’s Silver News. Despite some analysts dismissing it as an outdated metric, the research shows the ratio still tends to revert to its long-run average, making it a tool worth watching for those who track silver and gold prices.
The ratio is calculated by dividing the current spot price of gold by the spot price of silver. When the ratio is high, silver is relatively cheap compared with gold; when low, silver is relatively expensive. The study identifies a long-term mean of roughly 60-to-1, meaning that historically one ounce of gold has been worth about 60 ounces of silver.
Mean reversion still at work
According to the Silver Institute, the gold-silver ratio has a persistent tendency to cycle above and below its equilibrium. When the ratio rises about 20 percent above the mean, it tends to move back, often overshooting on the downside. Two notable examples illustrate the pattern. During the money creation that followed the 2008 financial crisis, the ratio climbed above 80-to-1. By 2011 it had fallen to 30-to-1 as silver rallied. In 2020, as COVID-19 fears gripped markets, the ratio hit a record 123-to-1. It then plunged to around 60-to-1 as central banks around the world ramped up money creation to support economies shut down by governments.
The study notes that recently, official-sector gold purchases and sales have pushed the ratio above the long-run 60-to-1 level. Heavy central bank gold demand has skewed the ratio higher. Nevertheless, the Silver Institute expects the ratio to revert to its mean of about 60-to-1 over time.
Stocks and investment demand
The report also highlights that the ratio of above-ground gold to silver bullion stocks moves in tandem with the ratio of gold-to-silver investment demand. This suggests that shifts in investor preferences between the two metals are linked to physical stock levels. When investors favour gold heavily, the ratio rises; when silver demand catches up, the ratio falls back.
The Silver News edition also covers recent technological advances in silver applications, though the study on the ratio remains the headline finding for precious metals watchers.
Key takeaways
- The gold-silver ratio tends to revert to a mean of about 60-to-1, a pattern that has persisted for decades.
- When the ratio rises roughly 20 percent above the mean, a move back toward equilibrium often follows, sometimes overshooting.
- Recent official-sector gold demand has pushed the ratio above 60-to-1, but reversion is still anticipated.
- The ratio of above-ground gold and silver stocks correlates with the ratio of investment demand for the two metals.
Common questions
What is the gold-silver ratio?
The gold-silver ratio tells you how many ounces of silver it takes to buy one ounce of gold at current spot prices. For example, if gold is $2,000 per ounce and silver is $25 per ounce, the ratio is 80-to-1.
Why does the ratio matter?
Historically, the ratio has tended to revert to a long-run average. When it rises well above that average, it can signal that silver is undervalued relative to gold, and a silver rally may follow. Conversely, a very low ratio may foreshadow a silver selloff or a gold price increase.
Is the gold-silver ratio still relevant?
According to a study in the Silver Institute’s Silver News, yes. Despite some claims that structural changes—such as heavy official-sector gold demand—have broken the pattern, the ratio continues to cycle above and below its equilibrium and is expected to revert to the mean.
For those tracking precious metals, the ratio offers a simple way to compare the relative value of gold and silver. You can follow the live gold price alongside the silver price to calculate the ratio yourself.
In summary, the gold-silver ratio remains a useful, if imperfect, gauge of relative value in the precious metals market. Its tendency to revert to a historical mean, even after extreme moves, suggests that it still holds predictive power for traders and investors who understand its limitations.