When Investing In Precious Metals Consider Gold To Silver Ratio

When Investing In Precious Metals Consider Gold To Silver Ratio 5.00/5 (100.00%) 5 votes

Many people are suggesting investing in precious metals such as gold, silver, platinum and palladium currently due to instability globally in terms of economies and paper currency.

Typically, precious metals are considered safe ground for retreating investors when times are too difficult. It is more or less common knowledge in the investing world that gold and other precious metals increase in value with the stock markets are struggling or currency is unstable, which has made it somewhat of a go to investment tool in recent years due to ongoing economic instability.

Though many expect that to continue to be the case, this article on investing in precious metals points out an interesting situation that is developing whereby instead of focusing on precious metals as a whole or singling out gold, investors should be giving much more serious consideration to silver.

The Gold to Silver Ratio

Over the course of the history of tracking values of gold and silver, the ratio has tended to stay around 15 to one. In other words, if gold is trading at $1,500 per ounce, silver should be in the neighborhood of $100 per ounce. At the moment, silver is trading at a spot price of $23.24 and gold is trading at $1,407.0. That ratio is way out of whack when compared to the historical standard of 15 to one.

Instead, gold is trading at more than 60 times the price of silver for a ratio that screams one of two things. Either gold is going to have to adjust downward to bring the ratio back toward balance or silver is due for a major climb up toward $90 to $95 per ounce.

Of course, there are no guarantees when trading, but gold and silver have increased in value for 12 years in a row according to the previously linked article. There do not seem to be any major changes in the world that have occurred in the last year that would indicate that gold or silver are due for a decrease in value.

In fact, if anything, the factors should indicate additional growth for precious metals. Global economies are still struggling and there is growing concern over inflation damaging the value of paper currencies. As a result, investing in precious metals is considered by many to be a safe play at the moment.

Consider Volatility

One thing that investors do need to keep in mind is that silver over history has had a tendency to be a lot more volatile than gold. It also tends to lag behind the movements of gold.

The additional volatility, however, may not be tolerable for all investors. For example, if you are closer to retirement or to any form of needing the money in a particular account, you may want to avoid overly volatile positions. In these cases you may want to only slightly increase your exposure to silver to minimize the risk.

On the other hand if you are younger or more willing and able to tolerate risk without it causing major problems in your life, the fundamentals seem to be in place for growth in precious metals. Again, the ratio between gold and silver is so far off that it stands to reason that silver is due for major growth, which could lead to tripling or quadrupling your money in silver.

That is, of course, if it hits the projected $90 to $95 per ounce that the historical ratio would expect. While it is important to continue to monitor the situation and consider other angles, for now it seems that silver is a strong play and investing in precious metals in general is as well.