Gold/silver ratio explained: relationship between gold price and silver price

The gold/silver ratio is a widely used indicator among investors in precious metals. This ratio shows how many ounces of silver are needed to buy one ounce of gold. Currently, the gold/silver ratio is once again in the spotlight, partly due to geopolitical uncertainty, inflation, and increasing industrial demand for silver.

In this article, we clearly explain what the gold/silver ratio is, how it has developed historically, and how investors apply the relationship between the gold and silver price in practice.

What is the gold/silver ratio exactly?

The gold/silver ratio is a simple yet powerful metric that shows how much silver you need to buy one ounce of gold. It is literally the ratio between the gold price and the silver price at the same moment.

The definition in one sentence:
The gold/silver ratio is: the gold price per troy ounce divided by the silver price per troy ounce.

Check the current gold-silver ratio here.

How do you calculate the gold/silver ratio?

The formula for calculating the gold/silver ratio is:

Gold/silver ratio = gold price (per troy ounce) ÷ silver price (per troy ounce)

A troy ounce (oz) is the international standard in precious metals and weighs 31.1035 grams. Because both gold and silver are priced in troy ounces, the ratio is a "pure" comparison between the two metals.

Example:

• Gold: € 2,000 per troy ounce
• Silver: € 25 per troy ounce
• → Ratio = 2,000 ÷ 25 = 80

This means: 1 ounce of gold "costs" 80 ounces of silver.

Why is this ratio so relevant for investors?

The ratio helps to quickly see which metal is relatively more expensive or cheaper compared to the other, without fixating on the absolute price level.

• High ratio (e.g., 90 or 100): Gold is relatively expensive or silver is relatively cheap. Investors often interpret this as: silver may be undervalued compared to gold.
• Low ratio (e.g., 50 or 60): Silver is relatively expensive or gold is relatively cheap. This can mean: gold is relatively attractively priced.

Further on in this article, we will delve deeper into a high or low gold/silver ratio and what this means for investing.

The relationship between gold and silver price

The relationship between the gold and silver price forms the core of the gold/silver ratio. This relationship shows not only which precious metal is more expensive, but especially how the market values gold and silver relative to each other in different economic circumstances.

To understand this dynamic well, it is important to look at the fundamental differences between both metals.

Gold and silver: two precious metals with different roles

Although gold and silver are often mentioned together, they fulfill a distinctly different function in the global economy:

• Gold: Buying gold is primarily seen as a store of monetary value. It has functioned for centuries as protection against inflation, currency risk, and financial uncertainty. Central banks hold gold as a reserve, and in times of crisis, the demand for gold often increases.
• Silver: Buying silver has a dual role. It is, on the one hand, a precious metal and investment vehicle, but on the other hand, also an industrial raw material. Silver is used on a large scale in electronics, solar panels, medical applications, and the automotive industry.

These different functions cause the silver price to generally be more volatile than the gold price, which directly influences the ratio between both prices.

Why does the relationship between gold and silver prices move so strongly?

The relationship between the gold and silver price is not a static fact. It changes constantly due to a combination of factors:

• Economic growth or contraction: In periods of economic growth, silver often benefits extra due to increasing industrial demand. The silver price then rises relatively faster than the gold price, causing the ratio to fall.
• Financial uncertainty and crises: In times of uncertainty, investors primarily seek safety. Gold then benefits more strongly than silver, leading to a rising gold/silver ratio.
• Monetary policy and interest rates: Low interest rates and loose monetary policy are generally favorable for both metals, but silver often reacts more intensely to changes in sentiment.
• Supply and scarcity: Silver is largely mined as a byproduct during the mining of other metals. As a result, supply can react less flexibly to price changes than is the case with gold.

Relative value instead of absolute price

An important advantage of looking at the relationship between the gold and silver price is that you are not dependent on absolute price levels. Whether gold costs € 1,500 or € 2,500 per troy ounce, the ratio shows how gold relates to silver.

For investors, this means:

• Not just looking at "is gold expensive or cheap?"
• But primarily: is gold more expensive or cheaper than silver, in relative terms?

This makes the gold/silver ratio a valuable comparison metric within a precious metals portfolio.

Why silver often determines the ratio

In practice, it is usually the silver price that causes the ratio to move strongly. Silver experiences larger price swings, both upwards and downwards. Consequently:

• the ratio often falls quickly in bull markets,
• and the ratio rises sharply in bear or uncertain markets.

This explains why investors regularly use the silver-gold ratio as an indicator for market sentiment.

The gold/silver ratio is: the gold price per troy ounce divided by the silver price per troy ounce.

Historical gold/silver ratio: development from antiquity to now

The historical gold/silver ratio shows that the relationship between gold and silver has no fixed value, but has been strongly influenced through the centuries by economic structures, monetary systems, and societal developments.

Antiquity: natural scarcity determines the relationship

In antiquity, the relationship between gold and silver was largely determined by natural availability. Archaeological and historical sources show that in many civilizations, including those of Egypt, Mesopotamia, and the Roman Empire, the gold/silver ratio fluctuated between 10:1 and 15:1.

These ratios reflected:

• the relative rarity of gold compared to silver;
• the simple mining techniques of that time;
• the use of both metals as currency.

The gold/silver ratio was first set by the Romans at 12:1. Over the centuries, the ratio rose to 16:1 and later to 20:1.

Middle Ages: trade and monetary agreements

In the Middle Ages, the relationship between gold and silver remained relatively stable. Many European trading states used fixed exchange ratios between gold and silver coins.

The historical gold/silver ratio in this period usually lay between 12:1 and 14:1.

Important here is that:

• governments actively intervened in currency ratios;
• gold and silver both played a monetary role;
• international trade required stability in units of value.

The ratio was thus largely politically and monetarily driven.

19th Century: the bimetallic standard

In the 19th century, various countries introduced the so-called bimetallic standard, whereby gold and silver were officially used alongside each other as money. The ratio was legally fixed, often around 15:1.

This temporarily provided stability, but also had disadvantages:

• when the market ratio deviated from the legal ratio, the "cheapest" metal disappeared from circulation;
• silver or gold was hoarded or exported;
• monetary tensions increased.

This period demonstrates that a fixed gold/silver relationship is difficult to maintain in a free market.

20th Century: letting go of gold and silver as money

With the abandonment of the gold standard and the disappearance of silver as an official means of payment, the gold/silver ratio changed fundamentally. From that moment on, the relationship was fully determined by supply and demand on the global market.

Characteristic of this period:

• gold took on a dominant role as a monetary store of value;
• silver developed increasingly into an industrial raw material;
• the ratio began to fluctuate more strongly.

In the second half of the 20th century, the relationship between gold and silver prices often lay between 40 and 60, but with clear outliers.

Financial crises and extreme ratios

During periods of economic stress, the differences between gold and silver often increase significantly. We see this reflected in recent history:

• Financial crisis 2008: ratio above 80
• Corona crisis 2020: ratio even temporarily above 120

In such periods, gold functions as the ultimate safe haven, while silver is hit extra hard by declining industrial demand. As a result, the gold/silver ratio rises sharply.

What does a high or low gold/silver ratio indicate?

The level of the gold/silver ratio provides investors with insight into the relative valuation of gold compared to silver.

It is important to emphasize that the ratio is not a fixed “buy or sell signal,” but a contextual indicator that helps in interpreting market conditions.

What does a high gold/silver ratio mean?

A high gold/silver ratio (for example 80, 90 or higher) means that you need a lot of silver to buy one ounce of gold. In practice, this implies that:

• gold is relatively expensive compared to silver, or
• silver is relatively cheap compared to gold.

What does a low gold/silver ratio mean?

A low gold/silver ratio (for example 50 or lower) means that silver is relatively expensive compared to gold. This often occurs in periods when:

• economic growth picks up;
• industrial demand for silver increases;
• investors are willing to take more risk.

How do investors use the gold/silver ratio?

Investors do not use the gold/silver ratio as an exact predictor, but as a strategic tool to better substantiate decisions.

The ratio helps in assessing relative value, estimating market sentiment, and determining the balance between gold and silver within a portfolio.

1. As a tool for portfolio allocation

Many investors hold both gold and silver to spread risks. The gold/silver ratio is used to assess whether that distribution is still balanced.

• High ratio: relatively more gold, relatively little silver
• Low ratio: relatively more silver, relatively less gold

When the ratio is historically high, some investors choose to cautiously increase their exposure to silver. With a low ratio, gold may become more attractive within the portfolio.

2. As a long-term indicator (no timing instrument)

The gold/silver ratio is particularly suitable for long-term analysis. Investors look at:

• historical ranges;
• structural trends;
• exceptional outliers (extremes).

A ratio that deviates from historical averages for a long time can be a reason to reconsider strategy, but rarely to act immediately. The ratio thus works as support, not as a driver.

3. For interpreting market sentiment

The ratio is often seen as a barometer for confidence or uncertainty in the market:

• Rising ratio: increasing uncertainty, flight to gold, defensive market
• Falling ratio: more risk appetite, improving economy, stronger silver demand

Investors use this signal to test their expectations against broader economic developments, such as inflation, interest rates, and geopolitics.

4. For relative value analysis (gold versus silver)

Instead of asking "Is gold expensive?" or "Is silver cheap?", experienced investors ask a different question: is gold more expensive than silver, relatively speaking?

The gold/silver ratio makes that comparison possible, separate from absolute price levels. This is especially useful in periods where:

• both metals rise, but not at the same pace;
• or both fall, but with different intensity.

5. Switching strategies among experienced investors

A small group of experienced investors applies so-called ratio-switching strategies. Here, gold is exchanged for silver (or vice versa) when the ratio reaches extreme values.

Important caveats:

• this requires discipline, knowledge, and patience;
• transaction costs and taxes play a role;
• it is not a standard strategy for every investor.

For most private investors, this remains a theoretical framework, not daily practice.

6. In combination with other analyses

The gold/silver ratio is rarely used as the sole tool. Investors often combine it with: airborne

• fundamental analysis of gold and silver;
• inflation and interest rate expectations;
• industrial demand for silver;
• monetary developments and central bank policy.

The gold/silver ratio shows how many ounces of silver are needed to buy one ounce of gold.

Conclusion: the gold/silver ratio in long-term investing

The gold/silver ratio offers investors valuable insight into the relative relationship between gold and silver. By combining this ratio with historical context, market sentiment, and economic developments, a better understanding of the dynamics between both precious metals emerges.

The gold/silver ratio remains primarily suitable as a strategic tool for the long term, not as a timing instrument. Those who interpret the ratio soberly and apply it within a broader investment strategy can use it to make better-substantiated choices within a diversified precious metals portfolio.