Gold-Silver Ratio and Its Utilisation in Long Term Silver Investing

Gold-silver ratio is one of the best known ratios of commodity markets. The historical gold-silver ratio used to be approximately 15 which is almost in line with the estimates of geologists that there is 19 times more silver than gold in the Earth’s crust. The gold-silver ratio used to be administratively set during the era of bimetallism. But after silver and later also gold were eliminated from the monetary system, the gold-silver ratio started to fluctuate wildly. The gold-silver ratio is closely followed by many financial analysts and investors who try to estimate the future price development of both of the metals. The aim of this article is to find out whether the gold-silver ratio may be used as a cornerstone for a profitable long term investment strategy. The research shows that when investing in silver, a simple strategy based on the gold-silver ratio brings higher returns than the buy & hold strategy. The difference between returns of the two strategies is statistically significant in the long run. DOI: 10.5901/mjss.2016.v7n1p285