The gold-silver ratio: what it is and how traders read it

1. How to work it out

Take gold in dollars per troy ounce and silver in dollars per troy ounce, both at the same moment. If gold were 2,000 and silver 25, the ratio would be 80: one ounce of gold buys 80 ounces of silver. Those numbers are an example, not a quote. On most platforms gold is XAUUSD and silver is XAGUSD. For what the first symbol means, see what XAUUSD is, and for the unit, troy ounces and grams.

2. What a high or low ratio is said to show

• High: gold is expensive against silver. It tends to come with nervous markets, when buyers prefer gold as a safe haven, and with weak demand for the industrial side of silver.
• Low: silver is gaining on gold. It tends to come with confident markets and strong demand for metals.

Both are habits of the past, not rules. The ratio has stayed high or low for long stretches, and a reading that looked stretched has often stretched further.

3. Why silver is not just cheap gold

Silver is both a store of value and an industrial metal, so it reacts to the economy as well as to fear. It also trades in a smaller market, which usually means bigger percentage swings and a wider spread against its price. The same lot on silver is a different risk from the same lot on gold. Work the size out from your stop, as in how to calculate lot size for gold, and check the contract size with your broker before you trade silver.

4. How to use it without fooling yourself

Use the ratio the way you use the dollar index or interest rates: as a backdrop that helps you ask what the market is worried about. Do not buy gold because the ratio is high, or sell it because it is low. If you want to turn the ratio into a rule, write the rule down and backtest it with costs first. We have not tested the ratio as an entry rule, and no BaroqTech strategy has passed our judge yet, so treat everything above as description. Our gold numbers page shows how far gold usually moves in each hour of the day.

The Monthly Pass and the Lifetime Pass are software licences for your own MetaTrader account. They score every robot and strategy you run the same way, with costs inside every number. See the plans.

FAQ

An educational tool. It is not investment advice. Trading leveraged products such as gold CFDs carries a high risk of losing money, and you can lose all of it.

BaroqTech makes software. It is not investment advice and it does not manage money. Trading leveraged products such as gold CFDs carries a high risk of losing money, and you can lose all of it. Results from a test or from a demo account do not predict results on a real account.