Maximizing Your Metals Holdings Using the Gold-Silver Price Ratio (Part 2)

This article was written by Addison Quale, SchiffGold Precious Metals Specialist. Any views expressed are his own and do not necessarily reflect the views of Peter Schiff or SchiffGold.
In Part 1 of Maximizing Your Metals Holdings Using the Gold-Silver Price Ratio, we briefly went over what the gold-silver ratio is, and how it tends to fluctuate up and down over time.
Generally speaking, the ratio tends to rise (gold becomes more valuable versus silver) during metals bear markets, and it tends to fall (gold becomes less valuable versus silver) during bull markets. This is due to the fact that silver is more volatile. As mentioned at the end of part I, by focusing on this ratio, and exchanging and trading holdings of one metal for the other at key points, investors can actually maximize gold holdings.
(A quick disclaimer – SchiffGold does not recommend the trading strategy explained in this two-part article. Some sophisticated traders of gold and silver do employ it to increase their gold holdings. I’m writing about this, because SchiffGold believes gold investors should be aware of the long-term relationship between gold and silver and the implications of this price ratio. You can read more in our free special report – The Powerful Case for Silver.)
A basic but dependable way to implement this strategy is to pinpoint generally the levels at which gold is overvalued versus silver and vice versa.
Over the last 40 odd years the average gold-silver ratio was roughly 54:1. This tells us that when an ounce of gold is about 54 times the value of an ounce of silver, the metals are essentially fairly valued. Extending upwards and downwards about 20 notches gives us a conservative estimate of gold being very overvalued at a ratio 75:1 and silver being overvalued at a ratio of 35:1.

This post was published at Schiffgold on JANUARY 27, 2016.