Thus far in 2017 the price of silver has outperformed the price of gold on a relative basis. That means that the gold-to-silver ratio (the number of ounces of silver it takes to buy one ounce of gold) is falling. It began the year near 71 and now sits at 68.5. A year ago it was well over 80.
What does a falling ratio indicate? Silver has nearly always had a higher “beta” than gold, meaning that its price rises and falls more rapidly on a percentage basis. Therefore, during a bear market the silver price falls more rapidly than gold. This pushes the gold-to-silver ratio higher.
However, when the market turns and a new bull market begins, the price of silver rises more quickly than gold and the ratio falls. The accompanying chart shows that after rising for four years (during a difficult bear market), the ratio has turned and now is steadily falling. The reversal in the ratio is yet another indication that a long term bottom appears to have been set in the price of gold and silver.
Which metal to buy?
Most of our clients prefer a mix of both gold and silver. However, for those who do not mind the more dramatic price swings that accompany silver, the long term returns in a bull market favor silver holders.
Regardless of which metal you choose, the falling gold-to-silver ratio is another welcome indicator of a renewed bull market. Now is the time to begin or continue accumulating gold and silver bullion as part of your long term savings and investment plan.