The Gold/Silver Ratio is a number that can change as the respective prices of Gold and Silver change.If Gold’s price decreases by a smaller percentage than the price of Silver, the Ratio increases.If Gold’s price decreases by a greater percentage than the price of Silver, the Ratio decreases.If Gold’s price decreases and the price of Silver increases, the Ratio will decrease.
—it takes less trading volume to push the price in either direction in a smaller market. Historically, Silver is about twice as volatile as Gold. A good example of the inverse correlation was during the stock market downturn in early 2020. The S&P 500 fell into bear market territory with record speed, and the Gold/Silver Ratio simultaneously reached to an all-time high.Economic sentiment is a significant driver of the Gold/Silver Ratio’s value. Some traders see the Ratio as a leading indicator of economic sentiment. When the Ratio is high, economic sentiment is poor and vice versa.
Pre-1900, the Gold/Silver Ratio was around 16, much closer to the physical quantities of each metal on the earth.Some analysts believe the Gold/Silver Ratio will eventually return to pre-1900 levels. For that to happen, the price of Silver must rise relative to the price of Gold, and some analysts cite that as a reason to invest heavily in Silver. However, a falling Gold/Silver Ratio does not necessarily mean Silver prices will rise.