How to Accurately Determine Gold and Silver Prices

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Gold and silver prices tend to correlate over time.
Gold and silver prices tend to correlate over time. (Image: coins in close up image by Alexey Klementiev from Fotolia.com)

There is more interest in investing in precious metals now than there has been in decades. Sharp increases in the precious metal prices have prompted many investors to consider investing in gold and silver. Most people who buy gold or silver want an accurate way to estimate the price of these metals. One way to accurately price gold and silver is through the gold-silver price ratio. The price of gold and the price of silver tends to correlate over time. In other words, the price of gold and the price of silver tend to trend similarly. By analyzing the gold-silver ratio, you can estimate the future price trends of these precious metals.

How to Determine Gold and Silver Prices

Search for the most recent silver and gold spot prices. Spot prices are price quotes for an ounce of gold or silver for immediate settlement. There are several online sources listed in Resources that offer real-time, or near real-time spot prices for both metals.

Jot down, or cut and paste the gold spot price and the silver spot price.

Form the two prices into a ratio form with the gold price serving as the antecedent (the first number) and the price of silver serving as the consequent (the second number). This creates the gold-silver ratio.

Reduce the ratio as much as possible. For instance, if the ratio is 1300/10, this can be reduced to 130/1. Or, the price of gold is 130 times the price of silver.

Compare the ratio you created with historical averages. Historically, the price of gold trades at a 15/1 ratio with silver. Or, the price of gold is 15 times higher than silver. If the current ratio is higher than that, it could mean that silver is too low, or that gold is too high. Another possibility is that a new price paradigm is being created.

Tips & Warnings

  • While prices tend to return to normal patterns, there's no way to accurately predict the precise time that normal prices are attained. As with every investment, past performance does not predict future results.

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