The ongoing correlation between precious metals can create a viable market sentiment metric. One example is the gold-silver ratio, which indicates where investors can place their bets. Using this metric to one’s full advantage will often provide decent returns.
The Gold-Silver Ratio In Action
As the name suggests, this metric depicts the correlation of the value of gold and silver. As gold remains the leading precious metal in this industry, it is a good standard to measure against. Moreover, silver is widely considered to be the “runner-up” for precious metals. Depicting the ratio between these two can often indicate industry sentiment for all precious metals. Both gold and silver are stores of value yet can note substantial price momentum every so often.
Depending on which of the two metals has stronger momentum, it can be wise to invest in either, both, or none. Financial markets ebb and flow regularly, influencing the values of precious metals. The COVID-19 pandemic, for example, has shaped a significant gold and silver price rally in 2020. This year, however, things appear to be a bit different. Both gold and silver are losing value regularly, affecting their internal ratio.
Today, the gold-silver ratio sits at roughly 67.5. That means one needs 67.5 ounces of silver to achieve the same value as one ounce of gold. It is remarkable to note how this ratio has dipped from 74 to 64 in February of 2021. A resilient move by silver bulls, although the momentum was unsustainable for very long. An intriguing development, confirming the gold-silver ratio is worth keeping an eye on.
When To Act On The Signals
Knowing what the gold-silver ratio is and acting on the signals are two different things. It is pertinent to follow the market trend before committing any money. Even though there are a few “rules” to leverage this metric to one’s advantage, the market can always shift direction quickly.
Both gold and silver can head in the same direction, although it happens rarely. In most cases, one will outpace the other, either as an increase or decrease. More often than not, gold will pave the way for silver, either for better or worse. However, last year has shown both metals can act independently and upset the normal balance of power rather easily.
Overall, it is a safe bet to buy gold when the gold-silver ratio is rising, and both metals gain value. However, if the ratio decreases and the metals rise in value, buying silver becomes a more viable option. The same applies to selling either metal, as it depends on which one decreases in value.
Conclusion
The gold-silver ratio is a viable metric for those who want to explore precious metal markets. Buying gold and silver to make money quickly requires collecting all of the necessary data and market metrics. When opting for a long-term investment approach, it is equally important to take note of the gold-silver ratio at all times.
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