Dhanteras 2024: Can the gold-to-silver ratio help you make the right investment choices?

With the current ratio sitting above long-term averages, is now the time to invest in silver over gold?

By: Lifestyle Desk
New Delhi | October 29, 2024 06:30 AM IST

4 min read

We spoke to experts to understand whether the GS ratio can guide investors (Source: Freepik)

Deciding whether to invest in gold or silver can feel overwhelming during Dhanteras, but content creator Prof. Vinny Arora says that simple tools like the gold-to-silver (GS) ratio might help make that choice easier.

“Now one needs to take into different scenarios before making a final purchase decision, but this is a good indicator to help you make an informed investment decision,” he mentions in the caption of his post.

This ratio measures how many ounces of silver it takes to buy one ounce of gold, offering insight into market trends and helping investors gauge which metal might be the better buy at any given time. Historically, the GS ratio has averaged around 60:1, but in recent years, it has seen significant fluctuations.

With the current ratio above long-term averages, is now the time to invest in silver over gold? We spoke to experts to understand whether the GS ratio can guide investors in making smart decisions and what factors should be considered beyond it.

How reliable is the gold-to-silver ratio as an indicator for deciding between purchasing gold or silver?

Devendra S, financial literacy expert, tells indianexpress.com, “The gold-to-silver ratio (GS ratio) can be a useful gauge for investors in India, particularly in assessing the relative value between these two metals. Traditionally, a higher GS ratio indicates silver may be undervalued than gold. However, this should not be the sole basis for investment decisions. While the GS ratio reflects historical pricing trends, it does not account for industrial demand for silver, which has grown significantly, especially in electronics and solar power.”

As a financial advisor, Devendra stresses, “I recommend using this ratio as part of a broader analysis, considering factors such as global demand, market volatility, and investment objectives. For instance, during economic uncertainty, gold often performs better as a safe-haven asset, while silver is more sensitive to industrial demand cycles.”

While the GS ratio can be a helpful indicator, relying solely on it carries risks. (Source: Freepik)

With the GS ratio currently above long-term averages, does this suggest that silver is undervalued?

Aditi Khandelwal, co-founder, Kicky and Perky, explains that with the GS ratio being well above long-term averages, often around 65:1, “there is a message that silver may be under-recognised compared to gold.” However, many market forces have to be factored in before investing. Industrial demand for is on the increase for silver with its role in many industries such as jewelry, electronics, and renewable energy sources. Thus, silver’s price will be supported by growing demand and will not necessarily be dependent on gold.

Dishi Somani, founder of Dishi S Designer Jewellery, mentions, “A high ratio, which is usually above 80, suggests that silver might be undervalued and could be a good time to buy it. Conversely, a low ratio nearly around 50, indicates that gold might be more appealing. Historically, this ratio has ranged between 50 and 70 over the past 50 years, reflecting market shifts. Currently, with a ratio of around 85, silver appears undervalued.”

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What risks should purchasers know when using the GS ratio as a tool?

According to Devendra, while the GS ratio can be a helpful indicator, relying solely on it carries risks. The ratio doesn’t consider the market supply-demand fundamentals for each metal. “For instance, if silver demand surges due to technological advancements (e.g., in solar energy or electronics), the ratio might suggest silver is undervalued, even though market forces could drive prices higher.”

Investors should also consider liquidity risks and market timing, especially since silver is more volatile than gold. One way to mitigate these risks is by diversifying across asset classes, not just precious metals. “Systematic investment plans (SIPs) in gold or silver exchange-traded funds (ETFs) can help spread risk over time, allowing investors to benefit from long-term trends without overexposure to short-term market fluctuations,” he recommends.

Disclaimer: This article is for informational purposes only and does not constitute financial or investment advice. We do not endorse any specific investment strategies. Please consult a qualified financial advisor before making any investment decisions.

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