This is not something you would typically hear about listening to the corporate financial media or most other media.  We don’t hear a lot about gold and silver anyway unless you run in those circles.

If you don’t own any gold or silver or investment vehicles that mimic the metal prices, then you should just get started when you can.  Gold and silver – but especially gold – are great hedges against dollar depreciation and general overall economic turmoil.  They also serve as a great form of diversification.

Gold is not highly correlated with stocks and bonds.  There are periods where they are loosely correlated, but there are other times when they diverge.  This is part of the reason I recommend the permanent portfolio.  The diversification smooths out the ride for your investments.

The Historical Ratio

The current gold-to-silver ratio is about 100.  This means that the price of gold is about 100 times higher than the price of silver.

It is a nice round number, so it makes it easy to visualize right now.  The current price of gold is around $3,300 per ounce.  The current price of silver is around $33 per ounce.  This gives us an approximate ratio of 100 to 1.

And while gold and silver tend to move up and down in price together, there are obviously differences.  A gold-to-silver ratio of 100 is historically high.

In March and April of 2020, the ratio briefly hit around 112.  Of course, this was during COVID hysteria and lockdowns.  When times are really tough, gold tends to be the favorite.

Other than that brief period, the ratio hasn’t been over a 100 in decades.  It barely touched 100 in the early 1990s.  You can see a 50-year chart here.

In 1980, during the major gold and silver bubble, the ratio actually fell below 20.  This was coming off the major inflation of the 1970s.  It was also a time when the Hunt brothers thought they could corner the silver market.  It was an interesting time for gold and silver, but the ratio below 20 is not representative of typical times either.  Something in the 60 to 70 range seems more normal, but who knows what normal is anymore.

Trading the Current Ratio

This is all to say that the current ratio near 100 seems quite high by historical standards.  There are certainly valid reasons for gold trading at such a high price to silver.  The biggest reason is that central banks are buying gold as a form of reserves.  Central banks almost never buy silver, at least that we are aware of.  In our world of sanctions, wars, and tariffs, it makes sense that countries want to diversify out of the U.S. dollar and hold more gold.

If the gold-to-silver ratio falls to a more typical range, then that means that silver is going to go up more than gold or that silver will fall in price less than gold.

If you believe that the ratio will revert to the mean (or to just a more normal level), then silver seems to be the better bet right now.

I still favor gold overall as an investment because of its history as a form of money and the implicit backing it serves for central banks.  Gold and gold-related investments should have a core place in your portfolio.

But if you already own gold and are looking to buy or sell precious metals, then consider trading the ratio.

If you want to sell a small portion because the price is high right now, then sell a little bit of gold instead of silver.

If you want to add more precious metals to your portfolio, then consider adding more silver than gold at this time because there seems to be more of an upside for silver.

If you own a lot of gold and little or no silver, then now may be a good time to sell off a little bit of gold and buy silver with the proceeds.  Consider it something like a carry trade.

Warning

We do live in an unpredictable world, and there is no guarantee that anything is going to happen, particularly with the economy.  Maybe a gold-to-silver ratio of 100 is the new normal.  Maybe it will go to 200 as sanctions and trade wars intensify and central banks load up on more gold.

This is to say that there is no guarantee that the ratio will go down any time soon.  And even if it does go down, it might simply mean that we’ve hit a deep recession and gold went farther down in price than silver.

The ratio is a tool.  It is just one tool.  It doesn’t predict the future for us.  But if you want to play the odds, it looks like the price of silver should be going up against the price of gold if there is any kind of reversion to the mean.

You should still have your core gold investments as part of your main portfolio no matter what the ratio looks like.