Using the Gold-Silver Ratio to Grow Your Precious Metals

The gold-silver ratio is an ancient financial measurement that can be used to grow your ounces of precious metals without adding more cash. Two investors, each starting with ten ounces of gold, demonstrate how this strategy works.

The first investor puts their gold away and forgets about it, while the second watches the relationship between gold and silver. When gold becomes expensive relative to silver, the second investor exchanges part of their gold for silver at a ratio of 100.

Years later, when silver has become expensive relative to gold, the investor switches back, buying twenty ounces of gold with the silver they acquired earlier. Despite having no additional capital, this investor ends up owning twenty ounces of gold, while the first still owns ten.

The gold-silver ratio is calculated by dividing the price of one ounce of gold by the price of one ounce of silver. Historically, this ratio has been around 12:1 to 15:1, but today it's much higher due to central banks holding large amounts of gold and virtually no silver.

Investors can use the ratio to their advantage by switching between gold and silver when the price relationship becomes unfavorable. However, there are transaction costs, taxes, and the challenge of recognizing turning points to consider.