Perplexity Labs – Silver Lining (Gold/Silver Ratio Analysis)

Putting Perplexity Labs to Work on the Gold:Silver Ratio

Understanding the Gold-Silver Ratio: Using Perplexity Labs to Research and Analyse this Topic

Recognising that the gold-silver ratio is one of the most powerful yet underutilised indicators in precious metals investing, we decided to use the new Perplexity Labs model to carry out comprehensive (deep research) analysis to explores how this ratio behaves throughout economic cycles. Our aim is to understand what it means for our investment strategy in 2025.

What Prompt to Use?

Working within our ‘trained’ Perplexity Space, we call ‘Cedric’, we used the following ‘task prompt’…

Please provide an in depth analysis of the gold & precious metals sector, focussing on gold & silver, with specific reference to the gold:silver ratio and how this changes in the context of the economic cycle, specifically before, during and after a recession. Be sure to list all citations, with clickable links and create suitable graphics to illustrate your findings

Before we look at some of Cedric’s analysis, let’s remind ourselves of a few basics…

What is the Gold-Silver Ratio?

The gold-silver ratio tells you how many ounces of silver you need to buy one ounce of gold. For example, if gold costs $2,000 and silver costs $20, the ratio is 100:1. This simple calculation reveals profound insights about market conditions and investor sentiment.

Historically, governments set fixed ratios – Rome used 12:1, and the US Coinage Act of 1792 established 15:1. However, since abandoning the gold standard in the 1970s, market forces now determine this relationship, leading to much higher and more volatile ratios.

Here’s a summary of Cedric’s findings… see the video (above) for more details.

How the Ratio Changes Through Economic Cycles

Pre-Recession: Steady Waters
During economic expansion, the ratio typically stays in the 50-60:1 range. Silver benefits from strong industrial demand (about 50% of silver usage is industrial, compared to just 10% for gold), keeping the ratio relatively stable.

Early Recession: The Flight to Safety Begins
As economic uncertainty emerges, investors start favoring gold’s superior safe-haven properties. The ratio typically rises to 60-70:1 as smart money begins positioning for turbulence ahead.

Deep Recession: Peak Divergence
This is where the ratio can spike dramatically to 80-120:1 levels. During every major US recession since 1971, gold has significantly outperformed silver. The 2008 Financial Crisis saw the ratio reach 84:1 as gold fell 30% while silver plummeted over 50%.

Recovery Phase: Silver’s Comeback
Here’s where silver shines. During recovery periods, silver often experiences more dramatic rebounds than gold due to its higher volatility characteristics. After 2008, silver surged 160% during the recovery, substantially outperforming gold.

Historic Crisis Performance

Major economic crises reveal consistent patterns:

Past extremes of high gold:silver ratio figures:

• 1973-75 Oil Crisis: Ratio peaked at 40:1
• 1980-82 Volcker Recession: Reached 45:1
• 2001 Dot-com Crash: Hit 65:1
• 2008 Financial Crisis: Spiked to 84:1
• 2020 COVID Pandemic: Record high of 125:1

The COVID pandemic created an extreme outlier, pushing the ratio to unprecedented levels as global supply chains collapsed and industrial silver demand evaporated.

Current Market Situation (2025)

Today’s gold-silver ratio sits at approximately 100:1 – significantly above historical averages:

20th century average: 47:1
Modern era average (2000-2025): 68:1
Current level: ~100:1

This elevated ratio suggests potential opportunities, but timing remains crucial.

Investment Strategy Implications

Professional traders often use the “80/50 rule”:
When ratio exceeds 80:1  –  Consider increasing silver allocation
When ratio falls below 50:1  –  Consider rotating to gold

Current levels above 100:1 suggest silver may be undervalued relative to gold, but the ratio can remain elevated during extended uncertainty periods.

Key Factors Driving the Ratio

Gold Advantages:
– Superior safe-haven properties
– Central bank accumulation
– Monetary hedge characteristics
– Less economic sensitivity

Silver Characteristics:
– Higher industrial demand exposure
– Greater price volatility
– Co-product mining nature
– Economic cycle sensitivity

Supply and Demand Fundamentals

Gold Supply:
– ~120 million troy ounces annually
– 70-85% from mining, remainder from recycling
– China leads production at 16% of global output

Silver Supply:
– Over 30,000 metric tons annually
– Mexico is the largest producer
– More complex due to co-product nature with other minerals

What This Means for Your Portfolio

The cyclical nature of the gold-silver ratio provides strategic guidance:

1. Pre-recession phases: Balanced exposure optimizes returns
2. Recession periods: Gold allocation typically favored
3. Early recovery: Often optimal entry points for silver
4. Late recovery: Silver’s higher beta can drive outsized gains

Looking Ahead: Key Considerations

While historical patterns provide valuable guidance, modern markets can diverge from historical norms for extended periods. Current elevated ratios could persist due to:

– Ongoing geopolitical uncertainties
– Central bank monetary policies
– Evolving industrial demand patterns
– Supply chain considerations

The Bottom Line

The gold-silver ratio serves as a sophisticated barometer of economic conditions and investor sentiment. Understanding its cyclical nature can enhance your precious metals allocation strategy, but remember that timing markets is challenging even with historical precedents.

Current levels at 100:1 represent a historically elevated reading that warrants attention, but successful investing requires patience and discipline rather than trying to time exact market turns.

Note: Members can access the Full (10 Page) Report on the Gold:Silver Ratio HERE!

Risk Warning: Investing involves significant risks, including the potential loss of your entire investment. The value of investments can fluctuate, and past performance is not indicative of future results. This report does not constitute financial advice; you should carefully assess your financial situation, risk tolerance, and investment objectives before making decisions. Always conduct your own research (DYOR) and consult an independent financial advisor if necessary.

DYOR: Cedric, Mick’s Research Assistant [edited by Mick: 7th June 2025].