The reality behind the gold-silver ratio embodies the amount in ounces of silver that it necessitates the ability to purchase once ounce of gold. The gold-silver proportion has the benefit of whipping the dollar value aspect when taking the straight position of either silver or gold. When you are taking a spread bet position on gold or silver you are actually taking on the position on the gold-dollar ratio or the silver-dollar ratio. The manufacturing demand for the precious metal may soar but if the US dollar continues to grow stronger the price gains may ultimately be stripped away. When you take a position on the gold-silver ratio, the dollar denomination can practically be disregarded, although the purposes of the conversely correlated risk-sentimental relationship between the gold and dollar aspect.

Egyptian Economics

The pairing between gold and silver is deeply rooted in monetary history starting with the Egyptians being the first ones to use the bi-metallic currency. The 13.3 silver to 1 gold ratio was the standard used for nearly a millennium. Although there was not much complexities over the issue of supply and demand of precious metals during the early economics of most civilisations at the time but was merely a symbolic calculation that the “silver moon” moves at a calculated pace of 13.3 times much quicker across the sky as compared to the “golden sun”

Surprisingly this standard was upheld for several thousand years until the 1800s and hit 45 points by the end of the century. It broke into three digits in the 30’s and 90’s but was still able to hold at the 15 level ultimately driving the price to $48.70 per troy ounce before crumbling by a $100m margin call.

Making Improvements on Demand

Early this year the gold has returned to an approximate 13 per cent for the year-to-date at the same time silver has gained 27 per cent over the same span in time. Whereas gold has only few industrial uses as being the rarest of all metals analyst have already forecasted that the price of silver would inevitably hit $45 an ounce before we could actually see spoil in demand-side. Silver is actually finding more and more applications in various fields at present such as solar technology, nanotechnology, water purification application and medical applications. However it is important to note that the silver market is much smaller than gold (a $4 move in gold is a comparable to the whole silver market.

Dealing with the Ratio

The question is therefore how to trade silver efficiently? On the basis of liquidity it’s really hard and costly to trade with retail investors using only physical commodities. It can be easier done by using spread betting of the use of CFDs or contract for difference. It is imperative that providers should not provide the ratio as an unrelated quotation therefore you need to take on two positions one on gold and the other on silver which could mean paying for the stop loss on either and each of the given trades.

Another alternative is with the use of the up-to-date gold-silver exchange-traded funds (ETF) that are sprouting out in the economical field which can give an inexpensive and low cost approach of approaching the gold-silver pair-trading strategy.