Gold-silver ratio: The gold-silver ratio, a key metric tracked by bullion investors, is trending higher amid the geopolitical tensions, given investors’ inclination to park money in gold rather than silver during periods of acute stress.
The Middle East conflict, though, has challenged the traditional status that gold and silver enjoy. Both precious metals have remained in the red despite the conflict, but the fall in gold remains capped as against silver, giving the yellow metal an upper edge and driving the gold-silver ratio.
US spot gold prices, currently at $5000, have lost 5% in March so far amid the US-Iran war that has entered its third week of conflict. Meanwhile, US spot silver is down 15.5% during the same period and has slumped below $80/ounce.
The oil price spike, amid the disruption at the Strait of Hormuz — a key global oil passage, has raised concerns around inflation and a pause in the rate cut cycle of the US Federal Reserve. Brent crude oil prices are trading around $105, and WTI crude futures are at $98. If interest rates remain higher for longer, investors tend to shift away from non-interest-yielding assets like gold.
Silver, on the other hand, is falling as investors remain worried that the Middle East crisis could weigh on global growth and reduce the demand for silver, which derives a large chunk of its value from industrial demand.
“The Strait of Hormuz disruption has compounded recession fears through surging crude prices, which directly threaten silver’s industrial demand base—particularly in manufacturing, electronics, and solar—while reinforcing gold’s role as the ultimate portfolio insurance,” said Harshal Dasani, Business Head at INVAsset PMS.
Gold-silver ratio
At the current levels, the gold-silver ratio is hovering around 62.5. This is unusually low compared with the recent highs of 107 at the start of the year, sparked by the sharp rise in silver prices.
Tata Mutual Fund last week shared in a report that from current levels, a mean reversion in the gold-silver ratio toward the 70-72 zone appears likely, mostly due to a rise in gold demand amid geopolitical and trade tensions.
In the near term, the ratio could push toward the 65–70 band if the Iran conflict escalates further, opined Dasani, suggesting that the impact of a crude oil spike would be more severe for silver than for gold. However, he added that once geopolitical risk begins to de-escalate, expect the ratio to reverse sharply back toward 50–55. “For context, a ratio below 50 would imply silver at $100-plus at current gold levels.”
The gold-silver ratio is computed by dividing the price of one ounce of gold by one ounce of silver. A higher ratio signals that gold might underperform, while a lower ratio suggests that silver has run up too fast, making gold a better bet.
Historically, the gold-silver ratio tends to rise during uncertainty or market stress, as investors favour gold’s stability. If economic optimism and industrial growth remain strong, the ratio could stay compressed — as silver thrives in expansion cycles. The past 10-year trend shows that the gold-silver ratio hovers around 80 levels.
Time to sell silver and buy gold?
Nirpendra Yadav, Sr. Commodity Research Analyst at Bonanza, said that investors should follow the 80/50 rule while investing in gold and silver. He said to buy silver when the ratio exceeds 80, and buy gold when it drops below 50; between those levels, hold a mix.
“Given today’s level, silver looks relatively expensive, so shifting a portion of holdings toward gold or maintaining a balanced allocation may be prudent,” he added.
Similarly, Ross Maxwell, Global Strategy Operations Lead, VT Markets, suggests that for now, the position should be balanced. “When the ratio is high, silver may offer greater upside potential as it tends to outperform gold during economic recoveries. Gold remains a strategic hedge against inflation, currency volatility, and financial stress. A diversified allocation that is slightly heavier toward silver during high-ratio environments could provide balanced risk with better potential upside,” he opined.
Disclaimer: This story is for educational purposes only. The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before making any investment decisions.
