When should you be invested in silver or gold?


In the 3rd part of this series of articles on silver we try to examine simple investment strategies. It turns out that using the gold-silver ratio (GSR) is not very suitable for applying simple moving-average strategies. Instead of using them for investment decisions, it was better in the past to “simply” buy and hold.


Investment rules for silver investing


It seems tempting first to take a closer look at the GSR, the gold-silver exchange ratio (chart 1). You remember, the GSR indicates how many ounces of silver you get for 1 ounce of gold.


Chart 1: The GSR ratio since 1952

Chart 1 shows the GSR in black and the 6-year and 2-year moving average of the GSR in red and blue respectively.


Buy when the price breaks through the moving average to the upside


Some may now think that it is easy to create a profitable strategy with the help of chart techniques. Moving averages are often used for this purpose. If the current price rises (falls) above the more inert moving average calculated over a longer period of time, it is recommended to buy (sell).

In our case, “buy” (sell) means to buy (sell) gold and sell (buy) silver.

Does this work? We test 3 rules:

  1. Buy gold and sell silver when the current GSR ratio rises above the 2-year average.
  2. Buy gold and sell silver when the current GSR ratio rises above the 6-year average.
  3. Buy gold and sell silver when the 2-year average rises above the 6-year average.

Chart 2 shows the results of these three strategies since 31/05/1955 compared to what would have been achieved if silver or gold had been bought and held. The three “strategies” and the silver and gold prices are indexed to 100.


Chart 2: Buy & Hold beats simple moving-average investment rules



Moving-Average would not have been a good investment strategy


If silver (gold) had been held since the end of June 1955, 100 USD would have become 3035 (5274) USD by the end of January 2021. The moving-average rules 1 and 2 would not have worked and are therefore not distinguishable from the X-axis in the chart.

Only the 3rd rule, “buy gold and sell silver when the 2-year average rises above the 6-year average”, would have worked “a little bit”. Over the total period, however, one would only have tripled one’s capital and for decades this strategy would not have worked. It is not even worth calculating the returns taking transaction costs into account, because the result is so clear. Moving-average strategies, at least the ones examined here, are unattractive. These statements also apply risk-adjusted. We deliberately want to content ourselves here with a graphical analysis of the strategies and not complicate matters unnecessarily by analysing sharp ratios, drawdowns etc.


Buy & Hold Strategy beats Moving Average


We draw an interim conclusion: the data suggest that simple moving-average-based investment rules, on which the GSR is based, do not work and buy & hold strategies perform better. This has clearly been the case in the past and is likely to be the case in the future.




Please do not be disappointed and wait and see! In the upcoming 4th part of this series of articles, we will continue to look for profitable investment strategies. Maybe we will manage to beat a buy & hold strategy after all? Might investment strategies that bet on silver when it is cheap compared to gold (value strategies) work? Or something else? In Part 4 you will also learn what silver investments might have something to do with Joe Biden, climate change and the FED.


Thomas Härter
Chief Investment Officer Aquila



Teil 1

Teil 2

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