gold and silver
Whenever the prices of gold or silver suddenly go up and down, people often ask what is the reason for this. To understand these fluctuations, an easy and reliable scale is used, which is called gold-silver ratio. In simple language, this ratio tells how expensive or cheap silver is compared to the price of gold. The gold-silver ratio is not a difficult formula, rather it is just a way of comparing the prices of the two metals. From this it can be understood whether at present gold seems stronger from investment point of view or silver is stronger.
How is the gold-silver ratio calculated?
To calculate this ratio, the price of gold is divided by the price of silver. The most important thing to keep in mind is that the price of both should be in the same unit, like both in grams or both in kilograms. Now let us understand this from the present example.
Suppose the price of gold is Rs 1.68 lakh per gram. At the same time, the price of silver is Rs 3.30 lakh per kg. Since there are 1000 grams in one kilogram, the price of silver is around Rs 330 per gram. Now there will be gold-silver ratio.
₹1,68,000 ÷ ₹330 ≈ 509
This means that at present gold is about 509 times more expensive than silver. This ratio tells a lot in itself.
What does it indicate if the ratio is high?
When the gold-silver ratio is very high, it clearly means that investors consider gold to be safer than silver. Usually such an environment is created when there is uncertainty in the economy, inflation is increasing, or there is an atmosphere of tension at the global level. In such times, people invest money in gold to avoid risk, due to which the price of gold increases rapidly and silver is left behind.
What does it mean when the ratio is low?
If the gold-silver ratio starts decreasing, it means that the demand for silver is increasing. Silver is used not only in investment but also in industries, electronics and solar sectors. When the economy is growing rapidly, the price of silver can rise compared to gold. In such circumstances, it is believed that silver can perform better than gold.
Why is this ratio important for investors?
The gold-silver ratio helps investors decide which metal would make more sense to invest their money in. Many experienced investors believe that when the ratio becomes very high, it can be beneficial to gradually invest in silver. When this ratio comes down significantly, gold starts looking attractive again. Although it does not make any definite predictions, it definitely gives a strong indication of understanding the direction of the market. Gold-silver ratio also indirectly affects gold loans. When the price of gold is stronger than that of silver, the amount available on gold loan can also be higher, because lenders consider gold as a safer asset.
Gold-silver ratio is a mirror of the price of gold and silver. It shows which metal remains the market choice at any given time. If you are an investor, trader or thinking of taking a gold loan in future, then keeping an eye on this ratio can be beneficial for you. In simple language, the clearest answer to why the prices of gold and silver are changing is often hidden in this ratio.
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