Donnerstag,05.August 2021
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Gold Silver Ratio sharply lower: what does it mean?

The prices of gold and silver have risen significantly this year, the silver price even more than the gold price. How should the retracement of the gold silver ratio be assessed?

Gold, Silber, Ratio
One troy ounce of gold cost 1,878 U.S. dollars on Wednesday morning. Silver was quoted at 26.20 U.S. dollars. As gold silver ratio results in a value of 71 (Photo: Goldreporter).

Precious metal rally

Silver was extremely undervalued against gold at the beginning of the year. One had to come to this conclusion in view of the historically high gold silver ratio (gold price divided by silver price; GSR). Last March, the ratio reached a value of 125. Those who bet on this and bought silver instead of gold in the course of the precious metal rally achieved higher price gains with their investment.

Gold Silver Ratio

In the meantime, the price ratio between the two metals has fallen back significantly. Currently it is at 71. In the morning, the gold price was quoted at 1,878 U.S. dollars, while silver was 26.20 U.S. dollars per ounce. What conclusions can be drawn from this development? The price trend of the year once again confirms a theory. The GSR usually reaches highs before the start of a precious metal rally. And vice versa: If the ratio continued to drop for months, then precious metal rallies also weakened.

Gold, Silver, Ratio, Chart
Gold price divided by silver price, 10 years: The peak of the precious metal rally in 2011 also marked the low in the GSR.

 

Perspective

If we look at the past 10 years, we can see the striking low in the GSR in September 2011, i.e. at the peak of the last major bull market in gold and silver. At that time, the ratio reached a value of 32. From this perspective, there is still some room for the precious metal prices to move. For such a ratio to be reached, the price of silver would have to rise to 58 U.S. dollars per ounce if the price of gold remained constant. Alternatively, at a gold price of $2,000 per ounce, a silver price of $62.50 would bring the metals to a ratio of 1 to 32.

Assessment

Silver can still be considered undervalued relative to gold. The gold silver ratio could slide further once the precious metals as a whole gain new tailwinds. In the short term, the retracement of the ratio indicates that silver has already performed well this year. After all, the silver price has risen by 45 percent since the beginning of the year. Gold gained „only“ 23 percent.

Translated with www.DeepL.com/Translator

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