Why do we track the gold to silver (GTS) ratio?

What is the gold to silver ratio?

To put it simply, this is the amount of silver oz's it takes to get 1oz of gold. That means at todays rate of 1-76, it takes 76 oz's of silver to get 1 oz of gold. Alot of people use websites and charts to track the GTS rate but i basically divide the spot price of gold by the spot price of silver. Based on today's metal prices gold £966.03 divided by silver £12.74 gives us 75.83, so today GTS is rounded to 1-76.

Why is this important if you only plan to stack silver?

Keeping your eye on the GTS ratio by checking it every few weeks will give you a good feel for when it is a good time to add silver to your stack. When the ratio is high, it is a good time to stack as it viewed that silver is cheap. When the ratio is low, some stackers may not buy silver until the ratio rises, experienced stackers will convert silver into gold and a few will swap to buying gold. I personally plan to swap out around 450 oz's of silver if the ratio ever hits 1-45 to get 10 oz of gold. This last happened mid 2011 and with the ways things are i do not hold my breath for this day to be soon.

What is the history of the GTS ratio?

Historically since 1687 the ratio has seen lows of -14 and highs of 1-100. The ratio was pretty flat prior to 1900 staying around 1-16 as gold and silver were used as currencies by many countries. During these times lots of countries including the USA and France set statutory limits on what the ratio could be to ensure it stayed steady. Since the early 1900's, the avg ratio of gold to silver has averaged 1-47 with huge swings and an all time high of 1-100 in 1991. If you look at the chart below, you will notice that the ratio starts to go crazy after the fed bank is started up.

Can money be made by trading the gold to silver ratio?

Its sure can, there is a chart below showing what could have been done over the past 30 years. It is not something i have ever done but as i said above, i will swap silver for gold when it hits 1-45. This done based on starting with a 100 oz of gold and sticking to simple rules of trading when the ratio is 1-45 and 1-80. Swap into silver at 1-80 and swap into gold at 1-45, sounds easy, right? You would have preformed 7 transactions over the 30 years and finished with 44,949 oz's of silver. You starting investment would have been 100 oz gold in 1985 costing £32,700 and finishing in 2015 with 44,949 oz's of silver worth £470,466. Now when you think that silver hit its all time low in 2015, there could have been more money to be made holding until after brexit happen. I have 30 years until retirement so if it drops to 1-45, i might play this game.

Example: (Im a freak for stats)

Start with 100 oz of gold.
In late 1989 when the ratio is at 80, convert the 100 oz of gold to 8,000 oz of silver.
In mid 1998 when the ratio is at 45, convert 8,000 oz of silver to 177.8 oz of gold.
In late 2003 when the ratio is at 80, convert 177.8 oz of gold to 14,222 oz of silver.
In mid 2006 when the ratio is at 45, convert 14,222 oz of silver to 316 z of gold.
In late 2008 when the ratio is at 80, convert 316 oz of gold to 25,284 oz of silver.
In mid 2011 when the ratio is at 45, convert 25,284 oz of silver to 561.9 oz of gold.
In early 2016 when the ratio is around 80, convert 561.9 oz of gold to 44,949 oz of silver.

To sum up, as i write this the gold to silver ratio is more than 76 and silver is nearing a 21 year low regarding gold. So in any case whether valuable metals go up are down, in the short term silver should outperform gold for next few years. There are no quick rich schemes when it come to stacking are playing the GTS ratio but the chart above show that sticking to a simple plan can give good yields. I just need to get that 100 oz's of gold to start :)

For me the GTS ratio is something i watch. It does not affect my buying are what i buy as a stacker but if the ratio ever hits 1-45, it will become an important factor of my stacking plan as this is part of the retirement fund and i have time to play. For you, take the information provided and go out and get more. You can never have to much info, this is more of a beginners guide.

Just on a final note, i would like to thank you for reading through my post and hopefully you have enjoyed it. As this format is still very new to me, i am still researching and learning how to make to best quality posts. Stay turned and hoepfully we can grow a great stacking community on here. Any questions, comment below are ask Hive account@silverstackeruk.