Gold To Silver Ratio: So What?

Analysts use this ratio to describe how inexpensive silver is compared to gold—like now. They also use the ratio to show long-term buy zones for both metals.

WHY?

Silver prices move up and down farther than gold prices. That pushes the gold-silver ratio too high, like now, when silver is inexpensive. Or it pushes the ratio too low, as in January 1980, when silver prices zoomed upward too far and too fast.

When the gold to silver ratio exceeds 80, it is often a good time to buy silver.

Do the data support this conclusion? Can we quantify this analysis?

Examine the chart of the ratio (weekly data) for 35 years, starting in 1983 after the early 1980 bubble had partially corrected. Look at the chart of silver prices since 1983. You will notice:

(Click on image to enlarge)

(Click on image to enlarge)

  1. Silver prices moved higher in a strong bull market after President Nixon severed the link to gold backing the dollar in 1971. Thereafter the dollar “floated” lower as commodities and consumer prices rocketed higher. “Stagflation” reigned.
  2. Silver prices went crazy in early 1980 and peaked over $50 in a bubble. The paper exchanges modified the rules and forced selling to collapse the bubble. A silver price of $50 per ounce in 1980 is equivalent to $200 – $300 per ounce today if appropriate cost-of-living adjustments are used.
  3. Silver prices fell, with occasional rallies, for two decades, bottomed in 1991 at $3.51 and again in November 2001 at $4.01.
  4. Silver prices rose to nearly $50 in April 2011. The powers-that-be worried and smacked the paper prices on COMEX much lower.
  5. Silver prices fell to $13.61 in December 2015, the apparent end of the nasty correction following the 2011 peak.

Summary: Bull markets from 1971 to 1980, from 2001 to 2008, and 2008 – 2011. Bear markets from 1980 to 2001, and 2011 to late 2015. Flat and a beginning bull market since 2016.

Examine the ratio since 1983. Select the nine peaks based on these rules:

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Disclosure: None. 

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