The Gold-to-Silver Ratio: History, Ratio Trades and Their Limits

What you will learn

• How to calculate the gold-to-silver ratio and turn a change in the ratio into relative performance.
• What the long historical range of the ratio shows, and what it cannot tell you.
• How a ratio trade (long silver, short gold) is built, sized and measured in euros.
• Why a ratio trade can lose on both legs at once and why the ratio is context, not a timing signal.

Explanation

The Gold course (lesson "Silver and Other Precious Metals") introduced the gold-to-silver ratio: the gold price divided by the silver price, both in US dollars per troy ounce. This lesson goes deeper.

Reading a change in the ratio

Because the ratio is a quotient, its percentage change depends only on the two percentage price changes:

ratio change = (1 + gold change) ÷ (1 + silver change) − 1

If gold rises 5% and silver rises 12%, the ratio changes by 1.05 ÷ 1.12 − 1 = −6.25%. A falling ratio means silver did better than gold; a rising ratio means silver did worse. The ratio can fall while both metals lose money.

The long historical range

• Fixed legal ratios: the US Coinage Act of 1792 set the ratio at 15:1, and France used about 15.5:1. These were official mint ratios under bimetallism (money based on both gold and silver), not market outcomes.
• After silver lost its monetary role in the late 19th and 20th centuries, the market ratio moved far from 15. Historical sources describe readings around 40 in the early 1900s and close to 100 around the start of the Second World War.
• Modern extremes: about 17 in January 1980 (during the Hunt brothers episode, covered in lesson 9), just above 30 near silver's 2011 peak, and above 120 in March 2020, the highest reading on record. In April 2025 it was again above 100.

What this shows: the ratio has moved between roughly 15 and 125 over about two centuries, often staying high or low for years. What it does not show: a stable "normal" level. Quoted long-run averages differ a lot depending on the start year chosen, and the 1792 ratio belongs to a monetary system that no longer exists.

Ratio trades

A ratio trade buys one metal and sells the other at the same time, betting on the relationship rather than on direction. "Long silver / short gold" profits if the ratio falls. Two ways to size it:

• Equal notional: both legs have the same dollar value. Notional value means quantity × price. With a ratio of 80, you sell 1 ounce of gold for every 80 ounces of silver you buy. The profit then depends roughly on the difference between the two percentage moves.
• Volatility-weighted: because silver usually moves more than gold, some traders make the silver leg smaller so that both legs carry similar risk. Equal notional is, in practice, mostly a silver bet.

Risks specific to ratio trades: two sets of costs (spreads, financing on both CFD legs), margin on both legs, different contract sizes that make exact matching impossible, gaps in either metal, and the fact that silver and gold do not always move together. In a sharp sell-off, silver has often fallen much more than gold, which pushes the ratio up quickly. Leveraged CFDs and futures can lose money fast.

Worked example

Hypothetical example: gold $3,000, silver $37.50, EUR/USD 1.25. Spreads, financing, fees and taxes are excluded.

1. Ratio: $3,000 ÷ $37.50 = 80.
2. Equal notional of $37,500 per leg: buy $37,500 ÷ $37.50 = 1,000 oz silver; sell $37,500 ÷ $3,000 = 12.5 oz gold.
3. Scenario A: gold rises 5% to $3,150, silver rises 12% to $42. New ratio $3,150 ÷ $42 = 75 (−6.25%). Silver leg: 1,000 × ($42 − $37.50) = +$4,500. Gold leg (short): 12.5 × ($3,000 − $3,150) = −$1,875. Net +$2,625, about €2,100.
4. Scenario B: gold rises 4% to $3,120, silver falls 10% to $33.75. New ratio ≈ 92.4 (+15.6%). Silver leg: 1,000 × ($33.75 − $37.50) = −$3,750. Gold leg: 12.5 × ($3,000 − $3,120) = −$1,500. Net −$5,250, about −€4,200.

In scenario B both legs lose: the short gold leg added to the loss instead of protecting the trade.

Common mistake

Practice activity

Hypothetical: gold $2,800, silver $35. You plan an equal-notional ratio trade of $28,000 per leg (long silver, short gold). Afterwards gold rises 5% to $2,940 and silver falls 5% to $33.25. (a) Calculate the starting ratio and the quantity of each leg. (b) Calculate the new ratio and its percentage change. (c) Calculate the profit or loss of each leg and the total.

Key takeaways

• Ratio change = (1 + gold change) ÷ (1 + silver change) − 1; it measures relative, not absolute, performance.
• Over about two centuries the ratio has ranged from roughly 15 to above 120, with no stable "normal" level.
• Equal-notional ratio trades are mostly a bet on silver's larger moves; both legs can lose together.
• Use the ratio as context for relative value, never as a timing signal on its own.

Next step

In the next lesson you will measure silver's volatility and size silver positions from a fixed euro risk.