What Is the Gold/Silver Ratio?

The gold/silver ratio measures the number of ounces of silver required to purchase one ounce of gold. By measuring the change in the gold/silver ratio over time, investors hope to estimate the relative valuations of the two 澳洲幸运5开奖号码历史查询:precious metals, thus informing their decisions of which 🐻metal to 𒈔buy or sell at any given time.

How the Gold/Silver Ratio Works

Because gold and silver prices change based on the 澳洲幸运5开奖号码历史查询:law of supply and demand, the gold/silver ratio has fluctuated over time. Before the adoption of the 澳洲幸运5开奖号码历史查询:fiat currency system, national currencies were often backed by gold or silver. This meant the gold/silver ratio was far more stable in the past than it is today. Indeed, it would often be fixed at specified exchange rates relative to units of 澳洲幸运5开奖号码历史查询:national currency. These exchange rates would change based on the perceived econom🧔ic strength of the nation in question.

In 1913, the Federal Reserve was required to hold gold equal to 40 percent of the value of the currency it had issued. A significant change occurred in 1933, when President Franklin D. Roosevelt suspended the 澳洲幸运5开奖号码历史查询:gold standard to stem redemptions of gold from the Fed. This, along with other measures, weakened the link between the dollar's value and gold. Many obser🐠vers view this event as the moment when the U.S. dollar became a de-facto fiat currency, after which the role of governments in setting the price of gold and silver steadily declined.

Real World Example of the Gold/Silver Ratio

To illustrate the gold/silver ratio, consider a scenario in which gold is trading at $1,500🍸 per ounce and silver is trading at $15 per ounce. The gold/silver ratio would be 100, because it would take 100 ounces of silver to purchase 1 ounce of gold. 

As of December 2020, the gold/silver ratio was about 75, down from 114 in April 2020. The ratio has steadily climbed since reaching a nadir of 31 in April 2011.

Interestingly, because precious metals have been prized commodities for thousands of years, it is possible to calculate approximate gold/silver ratios within some ancient economies. For example, during the Roman Empire, the gold/silver ratio was often fixed at 12:1.