The Gold to Silver ratio is a ratio of difference in prices of gold and silver.
In it's simpliest of terms, the ratio represents how many ounces of silver would it take to have the same value as one ounce of gold.
For many investors the gold-to-silver ratio is one of the indicators used to determine whether it makes sense to invest money in gold or silver
Currently, the gold to silver ratio is 86.17. This means that it would take 86.17 troy ounces of fine silver to purchase one troy ounce of gold. Or, conversely, one troy ounce of gold could be used to purchase 86.17 troy ounces of silver.
When the gold-to-silver ratio is near historic highs, many investors see this as an opportunity to purchase silver. As the gold to silver ratio goes down, some will convert their silver into gold. This allows investors to reduce the physical size of their precious metals investment but still retain the same value.
Gold and silver have been used as a form of currency for thousands of years. The gold-to-silver ratio has been measured as far back to 17th century AD. Prior to 1900, the gold-to-silver ratio had remained relatively stable.
The United States Constitution established gold and silver asthe legal tenderof the United States with a floating exchange rate. Shortly after, Alexander Hamilton, then Secretary of the Treasury, proposed fixing the silver to gold exchange rate at 15 to 1. The Coinage Act of 1792 established the gold-to-silver ratio of 15 by law. In the early 19th century, the ratio was changed to 16.
By the early 20th century, the United States abandoned the gold and silver standard. From then on, the gold to silver ratio has varied greatly and ranged from 14 to 100.
The gold to silver ratio has been near historic highs for the past several years. Many precious metals investors believe that the ratio is out of balance and that silver is currently immensely undervalued and represents a huge opportunity for buying silver.