Wall Street investors use the gold silver chart ratio to outsmart other metal traders. The cold truth is that the gold silver trading strategy presents substantial profit potential if you know how to interpret the ratio readings. Throughout this trading guide, our team of experts will craft a special sauce, so you can better understand what the gold-silver ratio is and how to use it.
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At the beginning of 2020, the yellow metal gold hit the highest level in 7 years and everyone talks about the world's oldest traded commodity.
If you listen to the mainstream media, you’ll learn that the gold price boost took everyone by surprise.
But our team of experts, who listen to the gold-silver chart ratio, knew in advance that the price of gold will rally.
Some of you are probably wondering:
Why the gold-silver ratio is so important?
Well, that’s what you’ll learn today…
But first, let’s start off with some basic terms before we really learn how to use the gold-silver ratio.
Below, you’ll find a simple definition of the gold to silver ratio along with some examples and last but not least a unique gold silver trading strategy.
What is the Gold Silver Ratio?
In simple terms, the gold-silver ratio is a mathematical ratio that shows how many ounces of silver are required to buy one ounce of gold. In other words, the gold-to-silver ratio measures the proportional relationship between the spot prices of gold and silver.
How to calculate the gold-silver ratio?
It all comes down to a simple math division.
Gold Silver Ratio Formula=(Gold price)/(Silver Price)
As an example, if gold is trading at $1,500 an ounce and silver is trading at $15 an ounce than this gold-silver ratio is 100 ($1,500/$15).
It’s straightforward as that.
Of course, gold prices and silver prices tend to move in sync. They are both commodities and part of the same precious metal group.
The gold-silver ratio also goes up and down over time.
As you can tell the ratio moves in tandem with the gold and silver prices.
Now, moving forward…
Let’s have a look at the gold-silver chart ratio historical readings and see what we can learn from that.
Gold Silver Chart Ratio
The gold silver chart ratio has helped over time gold enthusiasts to capture some of the biggest market trends in the commodity industry.
Over time the gold to silver ratio stood at important historical levels that often signalled strong gold and silver trends that lasted several years.
Gold traders will use the gold silver chart ratio when the ratio readings are at an extreme.
Let me explain…
If the gold-silver ratio has gone too far one way or the other that’s a good buy and sell gold signals.
Let’s have a look at some historical important levels for the gold-silver ratio.
In recent decades, on the upside, the largest extreme ratio of gold prices to silver prices recorded has been 100.
Gold-silver ratio hit almost 100 in February 1991, and the crazy thing is that we never hit that figure again.
See the gold-silver ratio chart below:
Here is how to interpret the 100 gold-silver ratio:
If the ratio is at 100, it means it requires 100 ounces of silver to buy just one ounce of gold.
In 2019, the gold-silver ratio saw another extreme reading. In July 2019 the ratio hit 93.
The historical average of the gold/silver ratio over the past 30 years has been around 60.
Why is the average gold-silver ratio important?
A move away from this sort of middle ground can result in some profitable trading opportunities in the metal market.
To have an idea of how the ratio has moved over time, the chart below tracks silver to gold ratio 1883 to present:
If you’re that type of trader who wants more evidence before deciding to use a trading tool.
Below you will find some gold-silver ratio examples and how the metal market reacted.
Gold Silver Ratio Examples
For example, let’s look at the gold-silver chart ratio for that historical high 93 established in the summer of 2019 and see how the markets reacted.
In July 2019, the ratio hit 93.
Check the gold-silver chart ratio below:
Usually, the extreme readings suggest that perhaps gold and silver prices are out of sync.
This will lead to a normalization process where the price of gold and silver will return to their average ratio.
In the above gold chart, we can see the price of gold caught up quite drastically on the gold to silver chart ratio.
Following that extreme reading, the gold price rallied more than $250.
Now, I know what you’re thinking…
Let’s buy gold when the ratio is at an extreme point and we can make a ton of money.
Well, that's not as easy as it seems.
Unless you know how to time the gold market, otherwise you will be trading blindly.
There are better ways to trade gold and in the next sections, you’ll learn a gold-silver ratio trading strategy to time the market.
The gold to silver ratio limits can change so you will need a solid gold silver trading strategy.
Let’s see what is gold and silver trading at today.
What is Gold and Silver Trading at Today?
Today, the spot price of gold is $1,580 an ounce, while at the same time; the spot price of silver is $17.80.
At first glance, we can notice that silver is worth a lot less than gold.
But, how much less is the price of silver worth?
If we apply the gold-silver ratio formula, we find out that today the ratio is 88.76.
Gold Silver Ratio Formula=(Gold price)/(Silver Price)=$1,580/$17.80=88.76
What does 88.76 gold to silver ratio mean?
It means that it takes 88.76 ounces of silver to equal one ounce of gold.
Because the gold to silver ratio can act as a trend filter, here’s how it works:
How the Gold Silver Ratio Works
We can distinguish 4 different market scenarios as follows:
- If the gold price rises faster than the silver price, the ratio will increase.
- If the gold price falls faster than the silver price, the ratio will decrease.
- If the silver price rises faster than the gold price, the ratio will decrease.
- If the silver price falls faster than the gold prices, the ratio will increase.
Basically, the different rates of price movements between gold and silver prices will determine the gold to silver ratio.
See the gold silver chart ratio below:
Look how the silver price rises at a faster pace than gold price and subsequently the gold to silver ratio drops.
Let’s see some gold and silver trading strategies that our team of experts has learned over a few decades of monitoring the metal market.
Gold Silver Trading Strategy
Let’s see how to trade the gold-silver ratio and examine several ways to profit from this ratio. Below, our team of experts will outline two gold silver trading strategies.
Gold Silver Trading Strategy #1
Metal futures traders can use the gold to silver ratio to gauge which metal between gold and silver is the strongest. The beauty of this strategy is that you’ll be trading the market that can potentially lead to more profits.
Here is how it works.
You’ll need to follow a 3 step process.
Step #1: Determine the Dominant trend on the Gold Silver Chart Ratio
In essence, determining the trend should be easy by just glancing at the technical chart.
You can use trendlines or market price structure (HH and HL for uptrend; LL and LH for downtrend).
Or, if you’re still confused about the trend direction, check some tips here: Trend Trading Strategies - The Right Side of The Market.
From the above chart, we can clearly determine that the ratio of gold and silver is in an uptrend.
Now, let’s see the gold and silver price trend.
Step #2: Determine the trend on the Gold and Silver Chart
We’re going to determine the trend for the gold and silver charts.
From the chart below it can be seen that more or less both gold and silver are in an uptrend.
Next step, see below:
Step #3: Determine which is the strongest metal between Gold and Silver
To help us establish a bias all you need is to learn the secrets below:
- If the gold silver ratio is in Uptrend and gold&silver in Uptrend: Buy Gold.
- If the gold silver ratio is in Uptrend and gold&silver in Downtrend: Buy Silver.
- If the gold silver ratio is in Downtrend and gold&silver in Uptrend: Buy Silver.
- If the gold silver ratio is in Downtrend and gold&silver in Downtrend: Sell Gold.
We let the cat out of the bag and you now know our tricks.
Based on our rules if the gold to silver ratio is in an uptrend and both gold and silver are in an uptrend we buy gold.
This means that gold is outperforming silver.
Compare the gold and silver charts below:
Gold outperformed silver and you would have made a profit. On the other hand, buying silver wouldn’t have made you the same type of returns.
Next, we’re going to reveal a simple silver intraday trading strategy.
Gold Silver Trading Strategy #2
In this section, you’ll learn a better silver futures trading strategy.
The Intermarket relationship between the gold and silver price can reveal a better way to time the metal market.
There may be times when the price of silver makes a new low, but the price of gold doesn’t track that movement.
When something like that happens a possible trading opportunity can emerge.
See the chart below:
We can note that the silver price has broken to a new low while the gold price has made a higher low.
This is a break in the gold and silver correlation.
It means that one or the other is lying.
To find out which one, we simply use the gold silver trading strategy rules revealed at step #3.
Based on those rules when the gold silver ratio is up and both gold and silver are moving down, the signal is to buy silver.
For timing the market, we have applied a 20 period MA over the silver chart.
A break above the 20 MA will trigger our entry.
Simple as that!
Final Words – Gold Silver Trading Strategy
When we use the gold silver chart ratio in conjunction with the individual price trends of gold and silver we can determine strong buying and selling opportunities. You can also ride massive trends with the gold silver ratio, especially when we have historical readings. However, since these only happen once or twice in a lifetime you can use our gold silver trading strategy to navigate the day-to-date price action.
The ratio can also be used to determine the overall market sentiment, which is a precious thing that can be used to trade other markets. Usually, a high gold to silver ratio is signaling a slowdown in the global activity, while a low gold to silver ratio is signaling improving risk sentiment. You may also enjoy reading this popular Gold Trading Strategy.
Thank you for reading!
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