Not since 2008 has the gold silver ratio been this high. Today it has backed off slightly and the ratio is now down to 83.
What is the Gold/Silver Ratio?
It is simply the price of an ounce of silver divided into the price of an ounce of gold. The resulting number shows how many ounces of silver it takes to buy an ounce of gold.
How is the Gold/Silver Ratio Used?
The ratio is used as a method of valuing silver against gold. It can also be used as a way to determine when it is better to buy silver and when it is better to buy gold. A higher ratio means silver is undervalued compared to gold. Conversely a lower ratio means silver is overvalued compared to gold.
So What is the Ratio Telling Us Now?
With the ratio reaching over 80, silver is undervalued compared to gold on a historical basis.
However we have seen the ratio as high as 100 back in 1991, so there is always the chance it could go higher yet.
Mike Maloney gives his take on it in the video below. In a nutshell he says that silver is undervalued compared to gold. But both are undervalued compared to dollars.
So people are rushing toward gold and ignoring silver.
This is a rare event and likely won’t last. He prefers to buy gold when the ratio gets below 50 and buy silver when it’s around 80. As shown in the chart below.
Why Has the Gold/Silver Ratio Exploded? Mike Maloney
Why is the Gold/Silver Ratio at New Highs?
There are two points of view on what a new high in the gold to silver ratio may mean.
1. That precious metals remain within the bear market or downtrend they have been in since 2011.
Why? Because only gold has been rising in recent months and silver has not confirmed gold’s rise. i.e. a high gold silver ratio. So this argument says a bull market in precious metals will only occur when both metals are rising.
2. Conversely it may be that silver is merely lagging gold and will play catch up before too long.
Gold is viewed as more of a flight to safety or crisis hedge than silver. So it is not surprising to see gold stronger than silver while sharemarkets have been falling lately.
Also back in 2001, at the start of the current bull market in precious metals, gold performed better than silver and precious metals miners did better than both metals. Silver was the last of the 3 sectors to recover and reached its lows in November 2001 (see the chart of that period of time below comparing, gold, silver and the XAU miners index).
So perhaps we are seeing something similar play out here now?
We stumbled across the below video that also lends some weight to this second scenario. (It’s a little rambly but we also outline the gist of it below).
REALIST NEWS – The 80:1 Silver to Gold Ratio – Is it about to change?
So in essence, gold is rising as an indicator of economic troubles brewing and a loss of faith in governments and central banks. Wealthy individuals are buying gold.
Silver will catch up when more people start to notice and they buy silver.
What Do We Think?
We’re leaning more towards the second scenario. Believing (and okay maybe hoping!) that a new bull market in precious metals has begun. But that silver is lagging gold (and precious metals miners) much as it did back in 2001.
What to Do?
As we’ve said many times that’s why when people say gold or silver, we prefer to say gold and silver.
Own some of both as they perform differently under different circumstances. But right now the ratio says that silver may be a better buy than gold. So there is a good argument for heavily skewing any purchases in favour of silver.
What do you think? Show us you’re alive and leave a comment below!