The Gold-to-Silver Ratio (GSR) measures the relative value between gold and silver. It tracks how many ounces of silver buy one ounce of gold, highlighting market mispricings.
1. Calculating the Ratio
The formula is simple: Gold Price per Ounce / Silver Price per Ounce. For example, if Gold (XAU/USD) trades at $1,800/oz and Silver (XAG/USD) trades at $22.50/oz, the ratio is 80.0.
That means 80 ounces of silver equal one ounce of gold.
2. Key Ratio Bands
- Above 85.0 (Silver Undervalued): Historically, when the ratio climbs into the high 80s or 90s, silver is cheap relative to gold. Capital often flows into silver, pulling the ratio back toward its multi-decade average of 65.
- Below 50.0 (Silver Overvalued): Seen during strong industrial rallies, signaling silver is expensive relative to gold.
- 60.0 – 75.0 (Normal Band): Reflects balanced industrial demand and steady central bank accumulation.
3. Trading Strategy
Traders execute relative value trades by buying XAG/USD and shorting XAU/USD in equal dollar amounts when the GSR reaches upper Bollinger Bands on weekly charts. This hedges dollar risk while capturing ratio mean-reversion.