By Sumit Roy
The gold/silver ratio rose above 60 today for the first time since September 2010. The ratio, which measures the relative value of gold and silver, falls when silver outperforms and rises when silver underperforms.
While gold and silver tend to move in the same direction, the wide range of the gold/silver ratio is evidence of that fact that there is a lot of variation in the relative performance of the two metals. During bearish periods -- when the duo is falling -- silver usually falls more; thus, the gold/silver ratio rises. Conversely, during bullish periods, the ratio usually declines.
The ratio fell as low as 31 in 2011, when silver peaked close to $50. The ratio rose as high as 84 in 2008, when silver plummeted below $10 amid the financial crisis of that year. Since the bull market began in 2001, the gold/silver ratio has averaged about 60. Coincidentally, the ratio was around that level -- 59, to be exact -- when the precious metals bull market began.
Using this metric, gold and silver look fairly priced relative to each other. In other words, neither is a better value relative to the other, based on current prices.