Those new to the world of precious metals investment might not be too familiar with the term, but goldbugs and silver stackers alike have often relied on the silver-gold ratio to help them with their precious metals investment. So what exactly is the silver-gold ratio?

Silver-gold ratio

Silver-gold ratio - Silver bullion bars

What is the silver-gold ratio?
To break it down simply, the silver-gold ratio refers to the number of silver ounces it takes to buy a single ounce of gold.

This system has actually been in place for thousands of years, with some experts believing that the value of silver was likely much closer to gold compared to how it is today.

These same experts also believed that the silver-gold ratio in ancient Egypt and feudal Japan were as low 2:1 and 3:1 respectively. Imagine that!

However, gold prices began to soar soon after, which could be attributed to the metal's ability to be shaped and formed easily, while retaining its look and signature shine.

In recent times, the ratio has averaged at about 40-60, with extremes on both sides quickly reversed.

Silver-gold ratio

Silver-gold ratio - Bullion coins

How is the gold-silver ratio used?
There's a reason why the ratio is followed closely by more experienced precious metal investors like goldbugs and silver stackers.

It is first important to understand that the reason you would want to use the ratio is to accumulate greater quantities of the physical metals itself, and not to simply increase currency-based profits. In short, it's a long-term strategy to ensure you trade your gold and silver at the right time, while continuing to expand your precious metals holdings.

This ratio is also particularly applicable if you're investing in precious metals for the purpose of hedging against the deflation and devaluation of fiat currencies, as precious metals have a proven record of maintaining their intrinsic value throughout history.

As a general rule of thumb, if the ratio is high, silver would be the better option as it allows you to amass greater quantities of the physical metal at a much more affordable rate compared to gold.

On the other hand, if the ratio hits a low point, that would be a great time for you to start buying gold instead, since the difference between buying silver isn't too great.

Silver-gold ratio

Silver-gold ratio - Gold and silver bullion products

Some concerns regarding the silver-gold ratio.
The main challenge present here is for the trader to correctly identify the more extreme relative valuations between gold and silver, as the prices continue to fluctuate wildly towards both sides of the spectrum.

While it is a good system to keep track of to determine the right time to trade in either gold or silver, the prudent and safe thing to do for most investors, especially the ones with a much lower capital, is to slowly stock up on your silver reserves. Of course, when the prices are right, you should also be adding some gold to diversify your precious metals portfolio.

At the end of the day, it's just a matter of equipping yourself with all the necessary information and research before you make any investment decisions.

In the meantime, you can continue stocking up your gold and silver reserves with our wide variety of products at the Nubex Exchange.

Disclaimer: Information contained in this article is NOT considered investment advice. Please do your own research and evaluate your own individual situation before making any investment decisions.