You don't have to limit yourself to stocks and bonds or bank accounts to create a portfolio. You can also use your money to buy assets you can touch -- like collectible comic books, farm land, or coins and bars of precious metals like gold and silver. Investing in precious metals is usually considered a way to protect yourself against inflation because, if the value of money goes down, an ounce of silver will still be an ounce of silver and its price typically goes up relative to the lower value of money.
Gold and silver share similarities. While both are used as investments and for industrial or jewelry applications, the proportions are different. Most gold is bought as an investment, while most silver is used industrially. When you look at the ratio of the prices of the two metals on the investment market, remember that factors outside of investors' trading activity affect the pricing.
Pricing and Production Ratios
Historically, gold has traded for around 12 to 13 times the price of silver. In other words, if silver is $20 per ounce, gold would cost around $240 to $260 per ounce. On the other hand, when you look at how much of the two metals get mined, approximately 9 ounces of silver come out of the ground for every 1 ounce of gold, as of publication. So, supply and demand forces factor into the price.
The Earth's Crust
The earth's crust contains roughly 0.0011 parts per million of gold and 0.07 ppm of silver. In other words, there's a lot more silver out there than gold -- almost 64 times more. Miners pull more gold out of the ground because it's worth more money, so it's worth the effort to find. This higher 64-to-1 ratio helps to justify why gold has traded at a higher price than the production ratio might indicate, though -- it is legitimately rarer.
While the traditional pricing ratio between gold and silver has fallen between 12 and 13, at the close of the New York market on June 14, 2013, the ratio was almost 63 to 1. This could indicate that gold is overpriced relative to silver, and some investors feel that when the ratio gets this far from the norm, it's a sign that a market shift could be coming. On the other hand, it could be reflective of increased relative demand for gold coming from increased wealth levels in Asia, where gold ownership is a cultural norm.
- Minyanville: Now's the Time to Buy Precious Metals
- Seeking Alpha: On Buying Silver Because Of The Gold To Silver Ratio
- Resource Investor: Revisiting the Gold to Silver Ratio
- EnvironmentalChemistry.com: Element Gold - Au
- EnvironmentalChemistry.com: Element Silver - Ag
- Kitco: Live Gold, Silver, Platinum, Palladium Quote Spot Price Chart
- MarketWatch: Gold/Silver Ratio Signals Complacency, Risk of ‘Snap,’ Analysts Say
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