A Change in the Winds

The Gold/Silver Ratio (GSR), which reflects the amount of silver it takes to purchase one ounce of gold, is showing significant movement right now. ASI President Rich Checkan does a great breakdown of this key metric and what it means for investors in last week's Getting Rich episode...

This week, the GSR is around 76 after lingering above 80 for most of 2022. And any time the GSR reaches its high point above 80, it signals a low point in gold and silver prices. The market typically follows with a major correction as precious metals spot prices move up in tandem... with silver moving faster than gold.

Due to a strong dollar and rising interest rates, gold and silver lingered in a narrow trading range for the last year, with a GSR that stayed above 80. This recent drop in the GSR is evidence that gold and silver prices are finally moving back up after this long period of consolidation. All assets this year have been in a deflationary period, but despite some dips, gold and silver are set to end the year essentially flat or possibly slightly above where they started (depending on how the next few weeks play out).

Why Does the Gold/Silver Ratio Matter?

The Gold/Silver Ratio (GSR) is an important measurement of gold and silver prices because it shows that the market as a whole is undervalued. The last few times this ratio hit 80 to 1, silver and gold prices increased dramatically over the years that followed. You’ve heard the saying that markets move in cycles - this is a technical measurement used to see that the cycle is starting to reverse.

A dropping GSR right now indicates a change in the winds for precious metals spot prices.

What Does This Mean for You?
Generally, it’s important to consider three courses of action when choosing to invest when the GSR is high…

1. Insurance—If your overriding objective is to buy precious metals for insurance, consider buying some insurance—gold.
2. Speculation—Considering the volatile nature of silver, with wider swings to the downside followed by wider swings to the upside, profit-motivated precious metals buyers may consider purchasing some silver.
3. Trading—Historically, this is the most common use of the GSR indicator. Traders will look to the height of the GSR—near this ‘magic number’ of 80—to sell some gold and buy some silver with the proceeds. Then, when the GSR hits new lows, they sell the silver and buy back gold.

Whether you choose gold or silver, we have two helpful tips you can consider before making your investment…

If insurance is your prime motivator, buy both gold and silver… but weight your purchase toward gold.

If profit is your prime motivator, buy both gold and silver… but weight your purchase in favor of silver.

As mentioned before, a GSR that is pulling back from its high indicates now is a good time to start investing in gold and silver. After all, it tends to indicate the market has passed the bottom for prices of both gold and silver and that the trend going forward should be bullish. 

Today's relatively low prices make an excellent opportunity to strengthen your position in gold and silver before the precious metals bull market gets back underway. We anticipate that 2023 will be a positive market environment for gold (and gold investors!)

To learn more about how you can profit from the current GSR, call us at 800-831-0007 or email us to discuss your options.