The coronavirus pandemic shattered the world’s workday culture and affected countless industries, but it also directly impacted the precious metals market. As the pandemic hit, the price of gold increased dramatically, followed by a plunge in the price of silver.
Since March of 2020, silver has rallied strong and sits at a healthy price evaluation. During that time, gold has remained relatively consistent in the price for the past two years. This dynamic points to the current buying power of silver, and the profitability investing opportunity to stockpile gold assets.
Why Exchange Your Silver for Gold?
In the past three years, the price of gold has risen by a whopping 43%, reaching a high of $2,067.16. With a three-year increase of $538.39 per ounce (42.46%), gold has undeniably performed much better than most other precious metals.
Meanwhile, the per-ounce price of silver has experienced a $7.40 (48.36%) increase in price over the past three years, reaching a high of $29.59 during this period. However, its current price sits at $22.69 as of December 2021.
As compared to other precious metals in the market, gold has not only performed impressively but is also expected to continue to do well in the future. It’s common for people to trade their silver assets for gold for the following reasons:
- Long history of value holding: Paper currency and other metals have experienced significant blows in terms of valuation over the years. But gold has managed to maintain its value throughout a variety of time periods and economic trends. In fact, it has become a symbol of generational wealth in many parts of the world.
- Inflation hedge: Gold is a remarkable anti-inflation hedge because it keeps or increases its value in the face of inflation.
- Deflation protection: Deflation is when the price of goods and services decreases, as does the average income. During such times, gold’s price often jumps in value.
- “Buy and hold” investment: Gold doesn’t generate regular income, but it’s a great investment for buying and holding over time as it increases in value with more certainty and stability compared to other metals such as silver.
- Geopolitical uncertainty: Gold does a great job of maintaining its value during times of sound financial and political conditions. But it manages to stay afloat even during times of financial and geopolitical uncertainty. It is one of the few investments that hold value in times of upheaval or complete economic downturn.
Although silver is also doing well in the face of the current economic conditions, gold remains a more reliable and predictable investment option for the years to come.
Why Turn Silver Into Gold?
The current valuation is 78.7 ounces of silver to 1 ounce of gold. In the past five years, the highest multiple has been 123.5, whereas the lowest was 63.1. So the current valuation sits at an attractive point.
Silver is experiencing a spike in price, with a $7.40 positive change in the past year. Silver is also expected to be a highly desired precious metal in the coming years because it’s used for many technological innovations, such as 5G devices, electric cars, and solar panels.
The price of silver could potentially rise in the future, allowing ratio traders to sell it to buy gold instead. That’s because ratio trading involves selling the higher-priced metal and buying the relatively undervalued one.
Meanwhile, the current rate of inflation coupled with the recent low in gold’s price has opened the door for investors to capitalize on gold. This boom in silver price and the slight dip in gold prices presents a ripe opportunity to transfer silver assets into gold.
It’s essential to keep in mind that gold has a better return on investment than other metals. Additionally, it’s more dependable and favorable due to its promising history of value maintenance.
How to Play the Gold-to-Silver Ratio
The gold-silver ratio measures the number of ounces of silver needed to purchase a single ounce of gold. Investors use the change in the gold-to-silver ratio over time to estimate both metals’ relative valuation.
For instance, if gold trades at $1,500 an ounce and silver trades at $15 an ounce, it would take 100 ounces of silver to buy 1 ounce of gold. Thus, the gold-to-silver ratio is 100-1.
Likewise, if gold were trading at $1,000 per ounce and the price of silver were $20 per ounce, the gold-to-silver ratio would be 50-1, as you would need 50 ounces of silver to buy 1 ounce of gold.
Right now (December 2021), the gold-to-silver ratio is 78.7-1, which means 78.7 ounces of silver will buy 1 ounce of gold.
Although the ratio may seem to be high, those familiar with the market will project that this is a favorable ratio to try and flip silver for gold. The silver-to-gold ratio can fluctuate depending on several factors, such as financial instability and geopolitical conflict.
The ratio currently steers on the high side due to the following reasons:
- Economic uncertainty
- Low-interest rates
- Low U.S. Treasury yields
- U.S. dollar weakness
- Instability in the equity markets
Gold is the more sought-out investment opportunity due to its higher value and ability to withstand financial instability and inflation. Because gold is viewed as a more valuable asset in the current market, it’s advisable to invest in gold rather than silver.
One approach is to make decisions based on the ratio and trade back and forth on the two commodities. Simply put, if one metal is cheaper relative to the other, you would sell the ”overpriced” metal and buy the ”undervalued” metal. When the ratio changes after some time, you would exchange the metals accordingly.
Let’s use an example for better clarification:
- You possess 1 ounce of gold, and the ratio goes up to 80-1. You would then sell your 1 ounce of gold for 80 ounces of silver.
- When the ratio goes down to 40-1, you’ll sell your 80 ounces of silver to buy 2 ounces of gold.
- In this way, you’ll continue to gather quantities of the metals by considering the ratio trends and maximizing your holdings. In this example, you’ve doubled your investment by going from 1 ounce of gold to 2 ounces just by trading the gold-to-silver ratio.
Although the gold-to-silver ratio can help you multiply your investments, it can be a bit tricky at times. The difficulty in this regard is identifying the relative valuation of the two metals.
Suppose the ratio goes to 80-1, and you buy silver. But the ratio then continues to increase in the next three to five years, going up to 120-1 or even 150-1. Now, you’re stuck with the silver.
If, for some reason, you have to trade back to gold in this period, it would mean a contraction in your holdings.
Alternatively, you can buy more silver and add it to your holdings, but there’s no certainty that the ratio will continue expanding in the future. Investors must be wary of this risk when using the gold-to-silver ratio as an investment strategy.
If you monitor the prices and ratios closely, you’re likely to suspect an upcoming extreme increase in the ratio before it happens. Here are some tips for using the gold-silver ratio wisely:
- Do not give into the hype. Instead, stick with a level-headed trading strategy.
- Ensure that you have a clear goal in mind before jumping into an investment. Knowing what you want to achieve makes it easy to monitor the ratio and react accordingly.
- You must be patient when using the gold-to-silver ratio for investing purposes. In fact, it takes a considerable about of time and patience before you see the results if you trade back and forth on the ratio.
The gold-to-silver ratio is not easy to use for short-term trading activities – nor is it recommended. That’s because changes in the ratio are more gradual than abrupt. But it’s quite advantageous when you’re in it for the long term.
Where to Buy Gold and Silver
Now that you know about the gold-to-silver ratio and its mechanisms, you likely want to know how to buy gold and silver. Wall Street Metals is a reputable dealer and buyer of precious metals, where you can find gold and silver in a variety of forms.
What sets us apart from the competition is our transparent pricing and expert industry knowledge. Our dedicated team of precious metals advisors is here to assist in any gold and silver questions and investment concerns you may have. Contact us today to exchange your silver for gold, and view our wide inventory of available precious metals.