Wondering whether to invest in gold or silver, and how much of your investment should be allocated to each? The good news is that the gold-to-silver ratio can give you some answers!

How to Use the Gold-to-Silver Ratio to Make Better Investment Decisions

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 💸 can be a real headache for many of us. One solution that often comes to mind is investing in 

not always easy to know when to invest in one metal over the other

, or when to sell. Luckily, there's an (almost) magical tool that can help you with decision-making: the gold-to-silver ratio. 📈

What is the gold-to-silver ratio and how does it work? 

No need to panic if math isn't your strong suit🤓, as the concept of the gold-to-silver ratio is relatively easy to understand. It simply shows the 

number of ounces of silver required to buy one ounce of gold

. For example, if the gold-to-silver ratio is 45:1, that means one ounce of gold is worth 45 ounces of silver.

But why bother with the gold-to-silver ratio when you could just look at the prices of gold and silver separately, you may ask? 

Merely looking at the prices of gold and silver provides only partial information. However, the gold-to-silver ratio offers a way to assess the relative popularity of one metal compared to the other. This makes it a 

, it means that the price of silver is undervalued compared to the price of gold. In other words, it may be a 

, the opposite is true. Investors may want to consider

Take a look at the graph below showing the price of gold (in blue) and the price of silver (in red) 

A graph showing how gold and silver prices changed over the last five years.

, it is evident that silver experiences greater fluctuations, particularly since 2020. This is mostly because silver is a more volatile asset, meaning it can experience more dramatic price swings compared to gold.

What factors influence the gold-to-silver ratio?

There are several factors that can have an impact on the gold-to-silver ratio. Let’s look at each of them in detail.

Could changes in demand for one metal versus the other affect the gold-to-silver ratio itself?💡

Well, yes, most likely. If all investors decide to buy silver because it is undervalued, then:

this increased demand will drive up the price of silver,

the gold-to-silver ratio will therefore be lower (it will take fewer ounces of silver to buy one ounce of gold).

. In practice, the gold-to-silver ratio is also influenced by other factors. 

a man with a laptop and a burning world globe in his hand

Precious metals are considered safe-haven assets

: when the global economy is in turmoil, investors tend to flock to a reliable store of value to protect their wealth.

If the global demand for gold, the ultimate safe-haven asset, increases while silver is neglected, the gold/silver will go up. This is what happened during the Covid pandemic.

The electronics industry has undergone a spectacular transformation over the past century. The 

, which is widely used in electronic components, has 

In 2020, this sector represented approximately 9% of the global demand for silver, according to the Silver Institute. The consequence?

How to use the gold-to-silver ratio in your investment strategy?

a man in a blue suit calculating his investment strategy looking at a pie chart and a graph

. This means it is possible to take an optimistic view with one of the metals, while keeping a short position in the other metal. 

strategy based on the gold-to-silver ratio 

is to sell the “overpriced” metal and buy the undervalued one. After a year or two, when the ratio shifts in the opposite direction, you can sell the “undervalued” metal and buy back the overpriced one.

The gold-to-silver ratio throughout history

a stack of silver bars and a gold bar on a bright red background

Historical records of the gold/silver ratio show that it has varied widely over time.

Excluding the COVID-19 pandemic, the highest gold/silver ratio ever recorded was in 1991 when it reached 100:1. At that time, 

it took 100 ounces of silver to buy one ounce of gold

Why was silver so undervalued? There were several reasons:

A global decrease in demand that impacted the electronics industry.

oversupply of silver compared to the low demand

, due to the (over)productivity of mines and the selling of the precious metal by many central banks.

At that time, silver was very cheap, costing only 

On the other hand, the gold/silver ratio dropped to 32:1 in 2011, its 

increased demand for silver from the industrial sector

The gold-to-silver ratio since the Covid-19 pandemic

a crowd of people wearing masks during the covid-19 pandemic

The future history textbooks dedicated to the 2020s are likely to feature numerous significant events, such as the Covid-19 pandemic, inflation, and the Ukrainian conflict. These events have had an impact on a lot of things, including the gold-to-silver ratio.

In 2020, at the height of the pandemic, it reached 120:1 due to 

Not because demand for gold is decreasing

because industrial demand for silver is once again on the rise

Here’s how the gold-to-silver ratio changed over the past 30 years:

A chart showing how the gold-to-silver article fluctuated between 2005 and 2020.

Two periods are particularly noteworthy for the gold-silver ratio: the "post-crisis" of 2011 and its renewed interest in silver, and the rush to gold at the start of the COVID-19 pandemic in 2020. 

The gold-to-silver ratio is a useful tool that lets you see which of these precious metals is more in demand at any given time. And if you're thinking of 

ratio can give you a good idea of how much of each to get and when to sell

But don't forget, it's not the be-all and end-all! You still need to do 

and really think about what you want to achieve with your investment and how you're going to get there. The ratio is just 

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