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A ratio demonstrating how many ounces of silver it takes to purchase one ounce of gold – the fixed variable.
The number of ounces of silver required to buy one ounce of gold at current spot prices.
Gold’s value is highly dependent on its relative scarcity as a commodity.
Unlike other speculative markets (such as the oil market), gold is non-consumable, even when used (eg., in jewellery), its value can be recovered.
When the ratio is high, the general consensus is that silver is favoured.
This is because relative to the ratio, silver is somewhat cheap. Many large-scale, experienced investors may trade their silver for gold as the ratio drops. This fluctuating ratio is used by investors to evaluate the relative value of silver, which determines whether it is an optimal time to purchase either of the precious metals.
It also helps investors in diversifying their precious-metal holdings. Typically, the gold-to-silver ratio serves as an impetus for diversifying holdings.
If one investment flops, alternate investments in your portfolio will offset the losses.
While there are countless websites providing the current ratio, it is relatively painless to calculate on your own.
It is simple: take the price of gold, divide it by the price of silver and you have the gold-to-silver ratio.
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