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Back the Truck Up on Silver

Gold & Silver News

 “You’re gonna need a bigger boat!”[1]


What, if anything, does the Gold to Silver ratio tell us about the future price of metals?

To answer the question we must first have an understanding as to what the Gold to Silver ratio is. As the name suggests, it’s the current gold price (e.g. $1,500)/ the current silver price (e.g. $15) to equal a number. For example, the ratio would be 100. The number 100 only makes sense when you see the historical context, see chart below:

Gold Silver Ratio  20 year Chart

The chart can be found on www.stockcharts.com when you search $Gold:$Silver as the stock symbol. At the time of writing the actual ratio stands at around 115! The furthest the chart will go back to is 1990, which reveals that the ratio is currently at the highest it’s ever been in the last 30 years.

When you look at the chart you will see 2003, 2009, and 2016 which were all instances where the ratio reached over 80. In these years, if you were to buy either gold or silver, the price of the metals would have gone up considerably, see the Gold and Silver charts below:

Gold 20 year Price Chart

Notice the 2003, 2009 and 2016 time period for silver were especially great times to buy.

Silver 20 year price chart

Someone could point out that when you look at the gold chart it increased from 2001 to 2011 almost continuously. While this is true it misses the point of the ratio.

The ratio (when thinking from the perspective of silver), says that when the ratio is high, it means that either:

1) Gold will decrease and silver may increase or stay the same,

Or

2) Gold will increase and silver may increase or stay the same.

Either way, at such extremely high levels you likely cannot go wrong with silver; it’s not going to decrease by much relative to gold. Also to note that in 2011 the ratio reached its lowest point (1st chart above), which corresponded to the all-time highs in both metals and was a good time to sell.

Like all things in the gold/silver space and stock picking, use the information and patterns available and make the best decision possible. I can assure you that your grandkids will never forget the time in 2020 when grandma/grandpa were buying silver when the spot-price dipped to $11, in a worse case scenario. (Even though the current physical purchase price will be much higher, and from my experience the same price before this recent market crash ever happened).

If your purpose is for wealth preservation and posterity then silver makes sense right about now; and if you wish to trade mining stocks then it might be time to start looking for bargains.

Good Luck!

EC


[1] Quote from the movie JAWS.

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