The Gold to Silver Ratio Trading Guide

Explaining the Ratio from the Ground Up

Most newcomers to precious metals track their wealth in terms of the dollar price and react to daily market charts. The gold-to-silver ratio strategy requires a different approach. Instead of measuring wealth in USD, investors measure it in total metal weight- the market price matters less than the total number of physical ounces held.

The gold-to-silver ratio is a mathematical indicator measuring the relative value between the two metals. It answers one specific question: How many ounces of silver does it take to buy exactly one ounce of gold?

It let's us build wealth by rotating one metal for the other.

Calculating this number requires basic division. Take the current spot price of gold and divide it by the spot price of silver. If the math yields 80, then 80 ounces of silver hold the same purchasing power as one ounce of gold at that exact moment. The Aquarian Metals mobile app provides this calculation for you so you don't have to do it manually.

The ratio fluctuates constantly while global markets trade. A rising ratio means gold is outperforming silver- and might be a good time to buy silver. A falling ratio means silver is outperforming gold- and might be a good time to buy gold. Tracking this relationship reveals historical extremes and shows when one metal is heavily undervalued compared to the other. High numbers mean silver is cheap relative to gold. Low numbers mean gold is cheap relative to silver.

The trading strategy revolves around these fluctuations. Investors swap an overvalued metal for the undervalued one. The objective is not generating paper currency profits, but accumulating more physical ounces over time by exploiting the tendency of both metals to revert to their historical averages.

A Short History of the Trend

The relationship between these two metals spans thousands of years. In ancient and medieval times, the ratio hovered around 15. The Roman Empire saw ratios between 12 and 15. The United States set the ratio at exactly 15 under the Coinage Act of 1792. Government decrees and metallic monetary standards fixed these early ratios rather than open market dynamics.

When governments detached modern currencies from physical metals in the twentieth century, the ratio floated on the open market and moved away from historical levels. Throughout much of the late twentieth century, the ratio stayed between 40 and 60.

Over the last thirty years, the average ratio has settled around 68. Gold has averaged 68 times the value of silver. However, averages hide massive volatility. During the early days of the global health crisis in 2020, the ratio spiked to nearly 126.

The Trading Cycle

A full cycle consists of two trades: swapping gold for silver, then swapping the silver back into gold. Pretty simple.

Consider starting with 4 ounces of gold (that's a LOT of gold in terms of fiat so you can start with fractions of gold to start... but we use this example for math simplicity). When the ratio climbs to a historical high of 100, one ounce of gold commands 100 ounces of silver. Silver is historically undervalued. Swapping the 4 ounces of gold yields 400 ounces of silver (4 multiplied by 100). The investor holds zero gold and 400 ounces of silver, ignoring the paper price of silver.

Years pass. Silver aggressively outperforms gold, causing the ratio to drop to 50. Gold is now undervalued. Swapping the 400 ounces of silver back into gold (dividing 400 by 50) yields 8 ounces of gold.

The cycle started with 4 ounces and ended with 8. The total physical metal position doubled without depositing additional cash or guessing the market price bottom.

Obviously, real-world trading isn't going to be perfect like this but the strategy still works because of the compounding effect.

Cycle Examples

• Cycle 1: Start with 0.5 oz Gold. Swap at 80 for 40 oz Silver. Swap back at 55 for 0.73 oz Gold.
• Cycle 2: Start with 0.73 oz Gold. Swap at 85 for 62.05 oz Silver. Swap back at 60 for 1.03 oz Gold.
• Cycle 3: Start with 1.03 oz Gold. Swap at 90 for 92.7 oz Silver. Swap back at 50 for 1.85 oz Gold.

80/60 Rule

The most common framework is the 80/60 rule. It removes human emotion and provides hard numerical thresholds.

The High Trigger

The upper boundary is 80. When the market ratio reaches 80 or higher, silver is historically cheap and might be a good time to accumulate silver.

The Low Trigger

The lower boundary is 60. When the ratio falls to 60 or lower, gold is cheap compared to silver and might be a good time to accumulate gold.

The Tranche System

Swapping an entire portfolio in a single transaction when a trigger hits carries immense risk. The 80/60 rule identifies relative value but does not predict exact timing- and you should never risk all your money on a single trade anyway. That's just common sense.

If an investor swaps all gold for silver at 80, they exhaust their capital and suffer if the ratio climbs to 100. Gradual rebalancing manages this risk. By dividing holdings into fractions called tranches, investors scale into trades.

A tranche system for the silver side divides tradable gold into four equal parts (25 percent each).

• When the ratio hits 80, swap the first tranche (25 percent of gold for silver).
• If the ratio hits 90, swap the second tranche.
• If the ratio reaches 100, swap the third tranche.
• If the ratio hits an extreme of 110, swap the final tranche.

The exact same system applies in reverse.

• When the ratio drops to 60, swap 25 percent of silver for gold.
• At 55, swap another 25 percent.
• At 50, swap another 25 percent.
• Below 45, swap the final tranche.

Scaling in and out blends the average exchange rate and removes the anxiety of picking exact market tops or bottoms.

Strategy Pitfalls

The mathematics look flawless on paper, but real-world execution faces psychological barriers. The strategy works, but human nature interferes.

The Pain of Stagnation

The ratio is not a short-term signal. Historical extremes can persist for months or years. A ratio of 85 strongly indicates undervalued silver, but it might sit there for forty months before reverting to the mean. Heck, some silver investors have held silver for decades without ever selling because the ratio wasn't as favorable to them.

Overtrading is a Disaster

Just because the ratio is in your favor doesn't mean you should trade everytime the ratio moves. Over trading can be expensive and eat into your profits.

Action Plan

Let's break it down into a few steps to get you started.

Step One: Establish your Starting Base

Check the current ratio to determine the initial direction. If the ratio is between 65 and 75, build a balanced base. If it is above 80, accumulate silver. If below 60, accumulate gold. Record the exact total of the physical ounces... the dollar value does't matter here.

Step Two: Define Trigger Thresholds

Know your triggers and when to trade. Once you know the ratio number you can decide to act on the threshold tirggers.

Step Three: Track the ratio

Check the ratio once a week using our mobile app. Ignore paper prices for gold and silver and just focus on the ratio.

Step Four: Execute the Swap

When your thresholds are hit, do what you have to do... buy or sell as needed. Just make sure you're not over trading.

Step Five: Recalculate and Wait

You can record your transactions in the mobile app and then export them to a spreadsheet if you need to. Having a record of your transactions will help you track your progress and see how your portfolio is performing over time... letting you make corrections if you to.

Quick Reference Sheet

The Ratio Calcuation

• Determine the Ratio: Spot Gold / Spot Silver (e.g., 2000 / 25 = 80 Ratio)
• Gold to Silver Swap: Gold Ounces * Ratio (e.g., 5 oz Gold * 85 Ratio = 425 oz Silver)
• Silver to Gold Swap: Silver Ounces / Ratio (e.g., 600 oz Silver / 60 Ratio = 10 oz Gold)

The Standard Tranche Action Plan

• 95 or higher: Silver is generationally undervalued. Swap heavy tranche of remaining gold for silver.
• 80 to 85: Silver is historically undervalued. Swap initial tranche of gold for silver.
• 65 to 75: Market is at fair historical value. Hold.
• 55 to 60: Gold is historically undervalued. Swap initial tranche of silver for gold.
• 45 or lower: Gold is generationally undervalued. Swap heavy tranche of remaining silver for gold.

Investing using the ratio is pretty straight forward. There's not a lot of guesswork involved. Just track the ratio and act when your thresholds are hit.