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How the Gold/Silver Ratio Impacts Investors

The market has seen an exciting resurgence in the prices of gold over the past year (since fall 2018). In fact, according to news outlets, gold spiked to over $1,400/ounce in June 2019 and continues to rise. There are numerous predictions about gold’s potential over the next few years. While historically silver has made similar spikes, it seems to be the decade for gold. Silver is lingering at just over $15/ounce. This ratio of gold to silver at mid-year 2019 means, “an ounce of gold has a value at 92 ounces of silver.”

There is much speculation as to how the gold/silver ratio will fall out this year. Initially, the fixed price ratio was 15 to 1, and in the 1990s, the ratio was an average of 47 to 1. Investors find a new pattern for the gold/silver ratio is not easy to accomplish.

Gold/Silver Ratio, Short-Term Vs. Long-Term

For investors that follow the gold/silver ratio, most expect a near-term correction since a previous vastly disparate ratio was 89 to 1 in 2008. There is some enthusiasm in the possibility of an upcoming modest spike in silver prices, given the state of gold. If silver continues to peak, buying low would be optimum at this moment. T For the long term and for the more cautious investors that recognize the slowed production in silver along with the reduced industrial demand both nationally and abroad, a silver comeback may be no more than wishful. Silver at one time was indeed renowned as a desirable precious metal to supplement an investment portfolio and fulfill metal requirements in many industries.

Silver is shown to be the most valuable and beneficial during periods of inflation and especially during periods of heightened global manufacturing activities (such as WWI and WWII). However, as the Great Depression impacted the nation, gold took precedence with a ratio of 100 to 1.

Another View of the Gold/Silver Ratio

Give the current state of the economy and an ever-booming stock market under the latest administration, and there are many enthusiasm and confidence among investors. While a recession is a certain possibility, the market remains strong. This is encouraging for gold prices and for silver prices. An economic downturn would naturally impact silver demand, but there is another way to look at this. Even if a recession occurred, it is after that period when the economy is shown to recover and industrial metals, especially silver, are in higher demand. In any event, a gold and silver investment may provide diversification for investment portfolios, whether the gold/ silver ratio is any indication for the future.

The Gold/Silver Ratio, Historically

When you compare gold and silver prices over the last century, it’s evident that gold trends above silver. Silver’s highest price came in at $48.70/ounce in 1979 and came very close to that again in 2011. Analysts agree that a fall in gold prices due to geopolitical issues at that time caused the surge in silver. When you evaluate today’s geopolitical landscape, and the vulnerability of the United States, the likelihood of serious events is at an all-time high. According to Fox contributor, Doug MacKinnon, a blackout is imminent. In his article entitled Will you survive the coming blackout? he states, “It truly is not a question of “if,” but of “when.”

Any episode of this nature would be devastating and certainly impact the gold/silver ratio much like the events that took place in 1979 (the Russian invasion of Afghanistan along with the hostage crisis in Iran, for example). Given trends in gold and silver, this decade is an attractive one for many to make a serious investment in precious metals, even silver.

The Gold/Silver Ratio Model

It is true that the gold/silver ratio has historically been a helpful model to measure cyclicality of gold and silver prices. The disparity between the metals has generally been based on surrounding events that impact supply and demand. While it is difficult to predict as to how the gold/silver ratio will fall out based on our geopolitical storms, there is certainly no better time to make an alternative safe-haven investment in precious metals. Even though gold is the most valuable, silver is today reasonable and accessible. Either metal is an investor’s choice for a strong diversification plan in the case of an unwanted disaster. Tangible, precious metals are shown to be assets that withstand economic downturns. What could be better a gold or silver IRA during this time of worldwide uncertainty?

Learn how a Gold, Silver, & Precious Metals IRA can help you hedge against inflation

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