One Easy Way to Determine if Gold or Silver is a Better Deal
One of the most common questions we receive is, “is gold or silver a better deal?”.
These are both great investments to have and complement each other nicely in a precious metals portfolio, but not everyone is necessarily looking for a combination of the two metals or has the resources to invest in both metals. Rather, they’re looking for the metal with the most upside potential with the hopes that their investment will pay dividends in the future.
There are many ways to determine if precious metals are fairly valued or not, such as comparing the current value relative to all-time highs, mining costs relative to market price, supply and demand dynamics, and the price relative to debt levels, but one of the easiest ways to determine on a relative basis if gold or silver appears to be the better buy is to look at the gold to silver ratio.
This may be a new concept to some of our readers, but it basically involves comparing the spot price of gold per ounce to the spot price of silver per ounce and determining if this number is high or low relative to its historical average. As an example, at the time of this writing, the spot price of gold and silver are $2,175 and $24.80, respectively. This is using the published spot prices on Kitco.com. If we divide the gold spot price by the silver spot price, we arrive at 87.7. The number itself isn’t helpful in isolation unless we compare it to historical averages.
If we look back at history, we see that the U.S. government fixed the ratio of gold to silver at 15 to 1 with the passage of the Coinage Act of 1792. However, it’s always best to look at when the metals were free floating to determine true market values. In this case, we might want to take a closer look at the gold to silver ratio beginning in 1971 when Nixon closed the gold window and abandoned the gold standard.
If we look at this period through present, we see that the gold to silver ratio has averaged between 60 to 1 to 65 to 1. The high was in April of 2021 at 125 to 1 and the low was 17 to 1 when silver prices approached their all-time high of $50 an ounce in 1980. At present, the gold to silver ratio would tend to indicate that the price of silver is low relative to gold, which may make silver more appealing to precious metals investors.
As always, we recommend that you look at the big picture when investing in precious metals, and consider other factors, such as the amount of gold to silver currently being mined, which metals are being purchased by central banks and if there are any discussions of countries or alliances (such as BRICS) potentially adopting gold standards in the future, but if you want a quick and easy way to compare the two metals, the gold to silver ratio is it.
We hope that you have found today’s article helpful and welcome you to contact Atlanta Gold & Coin Buyers if you’re interested in investing in gold, silver or both. While we don’t provide investment advice, we can help to identify which items may be best suited for your situation and circumstances.
