Gold-Silver Ratio: A Market Thermometer for Fear and Confidence
Explore how the Gold-Silver Ratio reflects market psychology, economic sentiment, and its relevance to traders navigating uncertain times.
The Gold-Silver Ratio (GSR) is a fascinating lens into market psychology. It tells us how many ounces of silver are needed to purchase one ounce of gold. Beyond being a simple ratio, GSR reveals more profound insights into risk sentiment, economic conditions, and potential trading opportunities. At Fractiz, we sometimes refer to it as one of the market's emotional barometers.
What Is the Gold-Silver Ratio (GSR)?
The GSR is calculated as:
Gold-Silver Ratio = Price of Gold / Price of Silver
For example, if gold trades at $2,000 per ounce and silver at $25 per ounce, the GSR is:
GSR = (2000 / 25) = 80
This means it takes 80 ounces of silver to buy 1 ounce of gold.
What Does a High or Low GSR Indicate?
- High GSR (>80 or 90): Gold is expensive relative to silver. It indicates rising fear and a preference for safety (gold). It often coincides with economic stress or deflationary trends.
- Low GSR (<60): Silver is relatively strong. Suggests optimism, reflationary periods, and potential economic expansion.
Silver has a stronger industrial usage component than gold, so its outperformance often indicates a risk-on environment.
Historical Context: GSR in Crises
- 2008 Financial Crisis: GSR spiked above 80.
- 2020 Pandemic Crash: GSR soared to a historic high of over 120 — reflecting extreme panic and demand for gold.
These events confirm that the GSR reacts sharply to global turmoil as a crisis barometer.
How to Plot GSR on TradingView
Open TradingView. Go to https://www.tradingview.com or your installed version
Use the Divide Operator. To plot GSR directly, click the symbol search bar at the top and type this:
XAUUSD/XAGUSD
This divides the price of gold (XAU) by the price of silver (XAG), resulting in the GSR.
Load the chart: Hit enter or click the divided pair (it might say “synthetic” or “custom” symbol). You’ll now see a live, historical Gold-Silver Ratio chart.
Pro Tip for Fractiz Readers:
View Live GSR Chart on TradingView
GSR and Economic Conditions
While GSR does not directly predict recessions or depressions, its movements often coincide with them:
- High GSR tends to appear before or during recessions.
- Falling GSR can signal the beginning of economic recovery.
The ratio indirectly tracks macroeconomic sentiment, and when used with other indicators (like VIX, bond yields, and equity performance), it can enhance your market read.
How Traders Use GSR
- Mean Reversion:
When GSR is unusually high (>90), some traders short gold and go long silver, expecting the ratio to normalize. - Trend Following:
If GSR is in a breakout, traders may ride the trend: long gold/short silver when rising or the opposite when falling. - Macro Hedging:
Used as part of a broader macro strategy to hedge against inflation, deflation, or currency moves.
Strategies to use GSR
While the classic GSR trade (buy silver, sell gold when the ratio is high, and vice versa) is the most popular, traders and quant researchers explore several other backtest-worthy strategies and variants using the Gold-Silver Ratio.
Backtest results of the classic Gold-Silver Ratio strategy
Entry Rule: Enter when GSR ≥ 90 (Sell 1 Gold futures contract, Buy 10 Silver futures contracts)
Exit Rule: Exit when GSR < 75 (Close both positions)
For reference, we use these lot sizes: 1 GC contract = 100 oz gold, 10 SI contracts = 50,000 oz silver
Here’s the full table of GSR backtest trades. Two major trades were triggered:
| Entry Date | Exit Date | Entry GSR | Exit GSR | Total PnL ($) |
|---|---|---|---|---|
| 2019-05-31 | 2020-08-06 | 90.00 | 72.87 | 615,820 |
| 2022-07-01 | 2024-05-28 | 91.60 | 74.04 | 565,720 |
These two trades alone generated a massive profit, but don't get carried away. They have long holding periods, decent drawdowns and occur rarely!
Look at the charts and see - Is this setup currently in the play?
If you wish to tweak the strategy with code, it is available here. Use the code at your own responsibility.
Stay tuned to find out more strategies around GSR.
⚠️ Disclaimer: This content is purely educational, analytical, and represents my personal market analysis and trading plan. It should NOT be interpreted as trading advice, actionable signals, or recommendations. Trading involves substantial risk of financial loss. Always perform your own analysis and consult with a qualified financial advisor before making trading decisions.
Final Thoughts
When writing this, April 2025, the GSR was around 100 and has been around that number for over a week.
View Live GSR Chart on TradingView
At Fractiz, we don’t see GSR as a standalone forecasting tool, but it’s a valuable signal in our broader market analysis framework. Think of it like a temperature gauge: it doesn’t tell the whole story but alerts you when something’s heating up — or freezing over.
The Gold-Silver Ratio offers rich insights if you trade metals or monitor them for sentiment cues.
Stay tuned to find out more strategies around GSR.
