The gold-silver ratio is simply the ratio of the price of 1 KG of gold to the price of 1 KG silver. Historically, this ratio has achieved equilibrium between the range of 50 and 70. When the gold silver ratio goes below 40, it is normally considered to be the time to buy gold. However, when the ratio of gold to silver goes above 80, it is time to sell gold and buy silver. This time, the gold-silver ratio has been around 100 for a fairly long period of time, despite the rally in silver. Even as we write, it stands high at 99.3 mark. 

We are not talking about the yield on equity earnings. We are referring to the returns that the asset classes generated over a period of time. Normally, a ten-year period is considered long term for most practical purposes. It is very rare that equity as an asset class has ended up underperforming gold over a 10-year time frame. This happened in the 1970s, but that was a different era altogether. However, if you look at last 10 years, it is quite astonishing to find that, despite the rally in equities, gold has outshone equities as an asset class. That itself is a clear case for a return to normal mode. 

The demand for gold, in the last few years has stemmed from a combination of central banks buying gold as well as ETFs catering to the investment demand for gold. Central banks are targeting the diversification of reserves, and even the RBI has moved 13% of forex reserves to gold. But, the million-dollar question is; how long can these investors remain risk-off. In a risk-on environment, the typical propensity is to bet on a revival in GDP growth. That is when investors again put money in equity and other high growth assets. Gold has been the preferred asset for a long time since 2008, and time is ripe for big shift back to growth. Gold rally may be truly done! 

If you are a trader or have invested in gold for capital gains, it is time to look at monetizing your gains for now and take a fresh view later. However, if you are a regular long-term investor, then gold would only be asset allocation for hedging purposes. Not much changes for you in that case, as you just need to maintain your asset allocation to gold in the range of 10% to 15%. The normal formula is that when you find the gold silver ratio closer to 100% it is time to move your gold allocation to 10%, in case you have moved it up to 15%. Gold always had, and always will have limitations as an investment avenue. It is as a safety net, that gold is king!