Gold Trading Terminology – In business terms, the “gold-silver ratio” refers to how many ounces of silver it would take to buy one pound of gold at any given time. In other words, it is a measure of the strength of the price of gold relative to the price of silver in the financial markets.
As two of the most valuable metals in the world, these commodities have a long and intimate history dating back centuries, and are still trusted by many of today’s forex and commodity traders. Supply and demand are seen as an indicator of market forces and the future. guidelines.
Gold Trading Terminology
To get the gold and silver rate at any time, simply divide the price of gold (per ounce) by the price of silver to get the real-time rate, which at the time of writing looks like this:
How To Trade Gold In 4 Steps
This means that the ratio of silver to gold is currently close to 71.7:1 – meaning you can buy more than 71 ounces of silver for the same price as one gold.
Conventional wisdom says that when the ratio returns the highest number (as above), it means traders should focus their money on silver; for example, when silver is cheap (relatively), you may soon be able to sell it at a higher price.
On the other hand, a low ratio indicates that gold is rising – because you can buy less for the same amount of silver – and that it may be a good time for opponents to move to the gold bar before the price rises.
Of course, many experienced investors are often willing to sell their silver for gold when the ratio changes. In fact, if you invest in silver when it is cheaper than gold and then sell it to buy gold – at which point silver becomes more valuable than gold – you are usually more successful than trading both metals. separately, without using the ratio as an arbitrary barometer of value.
Understanding How Gold Prices Are Determined
The ratio of silver to gold has been stable for most of the last century due to the fact that the value of the two metals themselves tends to change based on investor needs and geopolitical events. By the 1920s, however, many governments around the world actually set fixed ratio values as part of their broader fiscal policies to increase financial security, making the ratio less vulnerable to market forces.
For example, the US government imposed a fixed ratio of 15:1 as part of the 1792 of the Coinage Act, before relying on the difference in the values of the two metals as the basis of his dual currency system. 1800 , Going way back, even the Roman Empire reportedly used a fixed ratio of gold to silver, reportedly set at 12:1.
Surprisingly, research by the US Geological Survey shows that silver is 17.5 times more abundant than gold in the Earth’s crust, which is another way to explore why, although the ratio has fluctuated between 12:1 and 18:1 at fixed times. relationship period.
After a long period of popularity, the fixed-ratio mechanism was phased out a century ago as many countries gradually moved away from the bimetallic system (and, as the technology continues, from the gold standard in general to electronic currencies. buildings).
Online Gold Trading: A Guide On How To Trade Gold
Finally, the prices of gold and silver have been completely freed from the constraints of government interference and are now traded on the free market as completely separate commodities whose prices are determined by supply and demand, like a commodity or any other property.
An important thing to understand about the gold to silver ratio is that it is mostly used by traders dealing in heavy commodities, especially gold. As a result, the name of the game is to get as much gold as possible over a long period of time, regardless of changes in its monetary value in the market (since many goldsmiths consider gold to be a reliable, recession-proof value and therefore a permanent investment).
· If a gold trader saw the ratio rise to the unusual level of 1:100 (as was popular in 1991), he could sell one ounce of gold for one hundred ounces of silver.
· Now that he had one hundred ounces of cheap metal, the trader would wait for the ratio to drop sharply again, say to 1:50.
The Gold Daily Chart Looks To Be Charting A Bearish Continuation Pattern
· At the opposite extreme, a trader would sell his 100 ounces of silver for two grams of gold—in doing so, he doubled his gold holdings without spending any additional money.
The above is a simple example of how the ratio can be used to accumulate wealth, but the main point is how traders take advantage of the ratio to move their money from one metal to another, as the difference in quality gradually changes between the extremes.
Also for emphasis, notice how no real financial value of the products had to be entered into the equation!
While the principle of the gold-silver ratio can be a useful guide for traders looking to specialize in metals, remember that it is not an exact science; what counts as overextended/overextended in the ratings is a subjective requirement and there is no accurate way to tell where the markets will be headed based on the ratio alone.
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For example, even if the ratio were to reach the 1:100 mark, the trader would have no way of knowing whether the rates would eventually stay that far apart or increase to 1:125 or 1:250. new market prospects.
If that happens and you lose patience and sell your gold for silver, you’re faced with the immediate task of exchanging the gold without damaging the coins – and even then you’ll have to wait. for a long time to confirm the opportunity in the balance before buying gold again. This is at your own risk!
The content provided here is not advice and should not be accepted by the user. We do not accept any responsibility for the direct or indirect use of the content contained in this article. We strongly recommend that you obtain independent financial, legal and tax advice before starting any investment or lighting business.
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