Gold to Silver Price Ratio reached 86.5 on 12th April, 2019, suggesting an impending economic crisis.
Gold to Silver Price Ratio has been a mysterious metric to most of the investors. In this guide we will try to unfold this secret for you!
In simple terms, gold to silver ratio indicates how many ounces of silver can be bought by 1 ounce of gold. Hence, the ratio of 86.5 reflects that an investor can by 86.5 ounces (2.45 Kilograms) of silver with just 1 ounce (28.35 grams) of gold!
So, what is the justified ratio? Historians believe that gold to silver ratio should be according to their availability in Earth’s crust, which stands at 19:1. However, in the modern era the ratio has never been such low. Average ratio in past 20 years has been approximately 60:1.
Why such a high ratio? Gold has always been regarded as safe heaven for investments and savings and the value of the precious metal soars at the time of crisis. Whereas, silver being the best conductor of heat and electricity is heavily used in the industrial sector. Thus, prices of silver often portrays the level of industrial activity in the country/world.
Economists often regard a gold to silver ratio of above 80 as dangerous because it gesticulates a slowdown in the economic activity and a greater demand for the safer metal. Recent peak of 86.5 was primarily caused by Central Banks all over the world buying gold to strengthen their reserves, signalling an upcoming crisis. During 2008-09 crisis the ratio surged above the levels of 80, and is again seen hovering at those levels.
(Source: Trading floor)
It will be interesting to watch, whether the ratio is able to justify its current levels.
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