The gold-silver ratio is commonly used to obtain helpful insights regarding the possible movements of Gold and Silver. The stock traders are often on the lookout for gold-silver ratio in order to determine the buy and sell signals of the two precious metals in the current market. That being said, it is important for investors and traders to know that the gold-silver ratio can be of great help in improving your current commodity trading strategies. Before we discuss the benefits and strategies of Gold-Silver ratio trading, let’s have a look at the meaning of this ratio.
To put in the simplest terms, gold-silver ratio is nothing but the total number of silver ounces a trader needs to sell in order to be able to gain one ounce of gold at the current market rates. For instance, when the price of the gold is equal to $1000 per ounce whereas the price of silver is trading at &16.65 per ounce, you can expect the gold-silver ratio to be approximately 60.
In 1991, the silver price was trading at an extremely low cost due to which the prices of the gold increased and the gold to silver ratio reached to its maximum number. The similar crisis occurred during 2008 when the prices of gold were increasing by leaps and bounds whereas the silver wasn’t performing well in the market. Here’s how gold to silver ratio works:
The traders can take advantage of gold-silver ratio trading. Here we have come up with two major strategies that can help you on trading gold-silver ratio. Read on:
The Gold-silver ratio is mainly used to determine which metal is likely to perform better than the other in the market. The traders who are planning to invest in gold or silver metals can use this ratio to find the prices of which metal can take a leap in the future and make their trade accordingly. Here are some major steps a trader can use to find the gold-silver ratio:
You may come across times when the gold-silver ratio reaches historic extremes. There can be either high historic extreme i.e. when the prices of gold increase extremely faster than the silver or low historic extreme i.e. when the price of silver increases much faster than gold. It is worth to note that the precious metals are correlated to each other, though they have different attributes. That being said, the extreme high cannot go beyond 80 and 100 and the extreme low cannot go below 60 and 40.
Gold and silver reaching an extreme level is the rare incidence. It only happens when there is an economic crisis in the country. But, when it happens, the traders get good opportunities. It is important for the traders to manage the risk as the gold to silver ratios has broken the historical extremes before and it can happen in the future too.
Also Read: Know How To Start Gold Trading Online
Also Read: Know How To Start Silver Trading Online