Gold – Silver ratio and market approach

Gold/silver ratio… Gold and silver are almost mentioned together in financial markets. In particular, silver is traded in significant volumes as an alternative to gold. Silver is not suitable for physical investment due to its chemical structure. It has been used as decoration and jewelry for years, and silver has been invested in this way. Today, silver is used as an intangible investment tool in both futures and foreign exchange markets.

Crisis investments… Various factors such as economic and political crises, natural disasters, monetary policies of central banks cause high volatility in currencies. In such crisis situations, investors may not want to invest in foreign currency. Gold is considered a safe investment tool as it is always available as a form of reserve in the hands of Central Banks. Increasing demand drives up the price of gold, and after rising gold prices, investors may hesitate to invest more in gold. This is due to the feeling that prices have reached an extremely high level, followed by a sharp decline.

Indications of uncertainty have had a negative impact on gold/silver radio, and there have been periods where silver has fulfilled its role as a safe asset instead of gold. Silver follows the price of gold with a lag and may differ significantly from the price of gold in certain periods due to industrial usage differences.

Speculation… Even though gold prices have reached the overbought point, if investors still do not trust risky assets, ie if their risk appetite is low, they can alternatively demand other precious metals such as silver in the commodity group or other instruments. In this case, investors can both diversify their portfolios and find the opportunity to earn high profits by taking positions at a low silver price. Therefore, the ratio of gold to other commodity group instruments can be an important indicator. In financial markets; Many ratios such as gold/silver, gold/copper, gold/oil, gold/palladium, gold/platinum are followed by individual investors and hedge fund managers who take speculative positions. The gold/silver ratio is one of the most popular among them.

Gold / silver ratio… Source: Bloomberg

Conclusion? The gold/silver ratio shows how many ounces of silver equal one ounce of gold. Investors use this ratio to compare gold and silver values ​​with each other. This ratio helps determine the best time to purchase one of these precious metals, for example when purchasing the other or choosing one over the other. For this reason, charts showing the historical course of the gold/silver ratio can also be used. A low ration indicates that gold is cheaper and therefore more preferred than silver, while silver can be considered cheaper when the ration is high.

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