The Significance Of The Gold/Silver Ratio

Gold is an amazing previous metal with properties that make it useful in a lot of industries. Gold is also a great store of wrath and can be liquidated whenever the owner needs cash. It has excellent heat and transmission capabilities which makes it useful in industrial applications, technology and in the creating of electronic devices. Gold does not tarnish like other metals which is why it has been thee most popular precious metal used in the jewellery industry. Gold is used in small quantities in dentistry, it is also used in some innovative medical applications. At some point in history, gold was used as currency but this changed when the major economic countries decided to drop the gold standard and to push fiat currencies. The most important aspect about owning gold is that it acts like a store of value. Gold is more than a decorative metal, but it is very functional.

When it comes to valuing gold, there are a couple of markers you can use, the most notable one is the Gold/silver ratio which goes back thousands of years. In the olden days gold was 10 to 20 times the price of silver. To get the ratio right, you would need to keep an eye on the current price of silver and compare it to the inflation-adjusted price throughout history. There have been anomalies before, but the ratio always self-corrects. The ratio is the same across the globe so it should be able to help you decide whether you should sell gold Brisbane or not.

The history of the gold/silver ratio

The gold/silver ratio has been fluctuating since the 20th century began. For centuries before then, the ratio which was set by individual government was fairly steady at 12-to-1 and 15-to-1. It was set at 12:1 by the Roman Empire and 15:1 by the U.S. government.

There was substantial amounts of silver being discovered in the Americas and the attempts by various governments led to a great volatility in the gold/silver ratio. In 1934, President Roosevelt set the price of god at $35 but it began to climb peaking in 1939 at 98:1. After the end of World War II, the Breton Woods Agreement was signed in 1944, the ratio began to decline going to historical levels of 15:1 in the 60s. It declined again when the gold standard was abandoned in the 70s.

The lowest the ratio has ever been was 32:1 around 2011. Some analysts believe that gold is overvalued. There is 20 times more silver in the ground than gold and less than 20 times more gold above ground hoarded by various central banks. Whilst silver is easily thrown away, every scrap of gold matters, which is why there are so many gold buyers or dealers who buy gold items in any condition.

How to use the gold/silver ratio

The gold/silver ratio is particularly interesting for people who own both precious metals. Precious metal investors would know that when the ratio is high, say 82. It means you need to sell 82 ounces of silver to buy an ounce of gold. How does it apply to the ordinary gold seller who wants to get some cash for gold? Usually, when the ratio is high, the price of gold is also high. It means the demand for gold is increasing and there are more gold buyers looking to buy gold from anyone willing to sell.

The most common method of trading the ratio is that of hedging a long position in one metal with a short position in the other. For instance, if the ratio is high and investors anticipate a decline  that would reflect a reduction in the price of gold relative to the price of silver, investors would buy silver and sell short an equivalent amount of gold, in order to get a net profit from a better price performance of silver compared to that of gold. This method works if you are the kind of investor who keeps an eye on the ratio and the spot price movements.

Right now there is a big buzz around the gold/silver ratio and those watching the markets know that this is the most opportune time to sell gold Brisbane.