Young investors looking to start trading will only make it that far if they hear about the gold-silver ratio. It’s an important aspect of the market, and in the world of investing, it’s perhaps the most important factor in the industry. If you’re reading this article to learn about the gold-silver ratio, you’re in the right place.
In today’s article, we will talk about the gold-silver ratio and other things you need to learn about it.
What is the Gold Silver Ratio?
The gold-silver ratio, some call it the mint ratio, refers to the value of an ounce of silver to an ounce of gold. Simply put, it’s the quantity of silver in ounces needed to buy a single ounce of gold. If you still need clarification, here’s how it works. If gold is valued at $500 per ounce and silver at $5, traders will refer to the mint ratio as 100:1. Similarly, if gold trades at $1000 per ounce and silver at $20, the mint ratio would be 50:1.
However, that can change as this ratio goes up and down for multiple years, constantly fluctuating. This is because market forces value gold and silver, at least nowadays. The ratio has been set differently by other forces in the past, usually by governing forces looking to stabilize their markets.
How is the Gold Silver Ratio Calculated?
Investors calculate the mint ratio by dividing the value of one ounce of gold by the value of one ounce of silver or how much silver would equal an ounce of gold.
For example, if an ounce of silver is $20 and an ounce of gold is $1600, the current gold silver ratio would be 80:1. However, unlike physical items, precious metals like gold and silver are weighed by a historical unit of measurement called Troy Ounce, which dates back to the Middle Ages and is equal to 31.1 grams. The standard weight nowadays is 28.35 grams.
What Does It Matter to a Trader?
Investors constantly focus on the gold and silver ratio for many reasons. When the mint ratio is higher than expected, that signals that the value of gold is currently overvalued. Conversely, if the mint ratio is lower than expected, the gold value is undervalued.
Movement in the ratio sheds light on the market’s current demand for both metals. Depending on the ratio, the charts will indicate a higher silver demand or vice versa. Investors in precious metals may use this ratio to gauge the supply and demand and the value they should put on either metal.
Why Should a Consumer Care About the Gold-Silver Ratio?
For consumers, especially electronics manufacturers, the mint ratio tells them how much precious metals they have to buy en masse to produce their electronics and other products that need precious metals. This is a common strategy that many companies employ, especially those that rely heavily on precious metals.
Many companies nowadays employ in-house traders, analysts, and even outside consultants to help them adjust to the current mint ratio so they can adjust adequately or take advantage of the situation.
Are Gold and Silver Good Investments?
Gold is generally viewed as a global currency. On the other hand, silver is viewed mainly as an industrial commodity. Even though they are viewed as two different entities, the price of the two metals is correlated, which means there’s room for variations. However, gold has one advantage, which is that it’s an investment metal.
For most investors and traders, gold is a flight-to-safety asset when the currency value changes or when the stock market goes on another drastic change due to high volatility due to various reasons like changing political climates, world pandemic, etc.; gold is the go-to asset for a lot of investors.
In Which Direction would the Gold Silver Ratio End Up in the Future?
Some experts believe that the mint ratio would fall up to 16:1. However, many also argue that the mint ratio would fall further below because silver is currently mined nine times more than gold. The COVID-19 pandemic recently saw a huge rise in the value of gold due to traders and investors turning to gold as an asset. But due to the restrictions lifted and many manufacturers being back in business, silver mining is back in full swing, and the value of gold is steadily decreasing.
Final Words
If you’re a relatively new trader or investor, one way to be successful in the long term is to keep an eye on the gold and silver ratio.
Some say that the mint ratio is the key to the world, and if you think about it, this sentiment might be very well true. But one thing is for sure, you will only make it very far in the industry if you know about the gold-silver ratio, and we hope that we have helped you in that regard.
