- Silver has a positive co-relation with gold and crude oil. This means usually when gold or crude oil prices move up silver tends to follow.
- Silver unlike gold is not just an investor’s safe haven but also an industrial commodity. Hence its price moves up if the economy is booming.
- Ratio between Gold and Silver prices can be 100:1 which is an extreme ratio at the higher level. At the lower level it can be even 17:1.
The essence of trading the gold-silver ratio is to switch holdings when the ratio swings to historically determined “extremes.” So, as an example:
- When a trader possesses one ounce of gold, and the ratio rises to an unprecedented 100, the trader would then sell his or her single gold ounce for 100 ounces of silver.
- When the ratio then contracted to an opposite historical “extreme” of, say, 50, the trader would then sell his or her 100 ounces for two ounces of gold.
- In this manner, the trader would continue to accumulate greater and greater quantities of metal, seeking “extreme” ratio numbers from which to trade and maximize his or her holdings.
Currently this ratio is 69.31:1 for 1 ounce of Gold and Silver in the spot market.