To quickly summarize the content of this article, silver and gold are generally part of the same overall wealth cycle. In other words, both markets are usually bearish or bullish around the same time.
If the stock market is going into a time of slow recession, then the price of gold and silver generally start ticking upwards about the same time. This has caused many to question whether it’s possible to technically predict gold or silver prices on the basis of what the other metal’s price is. That’s what this article is about.
The Historical Gold/Silver Ratio Average
Historically speaking, the going traditional expected ratio between gold and silver was 16. An ounce of gold has traditionally bought something around 16 ounces of silver. There’s obviously been a ton of fluctuation, but this is supposedly something close to the historical average.
The reason for this ratio is found in the amount of finite supplies, historical demand for monetary reasons, and industrial demand. It’s usually been about 16. As Roland Watson pointed out:
“Looking across the Atlantic to the COMEX warehouses, the ratio of silver to gold inventories as of Monday was 12.24.”
Of course, this is only an average. The overall comparison between inventories, demand, and supply are going to be a little different just because the markets are different. Plus, because silver is cheaper, it experiences more laypersons speculating in it, making it a little extra speculative and volatile, among other reasons.
Is This How to Predict Gold Prices?
I wouldn’t use this to predict gold prices alone, though it’s not something you want to ignore. For example, if you see buy signals compared to the price of oil, the price of silver, and think gold is going to probably see more demand in the future, then you should probably go ahead and buy some more gold.
If, however, you’re not sure where investor demand is going, aren’t sure what to think about inflation… then I wouldn’t buy gold just because some oil or silver ratio is off. It might mean that oil or silver are expensive, rather than gold being cheap. Making the wrong call can put a huge chunk of your portfolio at massive risk.
Once Again: The Case for the Permaskeptic
I’ve written in the past about why I’m a permaskeptic, meaning I don’t pretend to be passionately and blindly bullish for any market. I try to keep a skeptical, open mind about everything. I’m willing to leave a little money on the table if it can cut my overall risk while still providing me with a healthy return. I’m not greedy for what’s hard to get.
To read about why I’m a permaskeptic, check out this guide on why gold price predictions are almost always wrong.
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