Gold and Silver Prices Are Crashing. What's More Likely to Bounce Back?

The prices of both gold and silver were rallying to start the year and would end up hitting new all-time highs. But that excitement has cooled off significantly, and both precious metals have been trading far lower in recent weeks.

Gold, which was once comfortably above $5,000 per ounce, is now around $4,600. Silver, which hit highs of more than $120, is currently at less than $74. Which of these two precious metals is more likely to bounce back this year?

Image source: Getty Images.

The gold-silver ratio can give investors clues as to which metal may have more upside

Turning to precious metals is a move that investors often take when they're worried about the health of the overall stock market and economy. And through exchange-traded funds (ETFs), it's easy to invest in them without having to physically buy bars of gold or silver. The SPDR Gold Shares (NYSEMKT: GLD) tracks the price of gold, while the iShares Silver Trust (NYSEMKT: SLV) gives investors exposure to silver. With silver prices taking off over the past year, the iShares Silver Trust has generated gains of 116% during that stretch -- higher than the SPDR Gold Shares, which is up around 47%.

But which precious metal may rise in value from here on out may not be immediately obvious. The gold-silver ratio, however, can offer some clues.

Gold trades at a far higher price than silver, and by looking at the gold-silver ratio, you can gauge whether it's much higher relative to silver than it has been in the past. Currently, the ratio is at 62, and that tells you how many ounces of silver you'd need to have to get to the value of one ounce of gold. Back in January, the ratio was getting close to 40, due to silver's soaring value.

Historically, during periods of economic turmoil, the ratio tends to increase. In 2020, during the COVID pandemic, the ratio spiked to more than 110. In 2022, when the market crashed, it went to 95. And during the Great Recession, it hit highs of around 80. On average, however, it's typically between 40 and 60. This suggests that the two metals may be correctly priced in relation to one another today, but if the economy gets into rough shape, it's gold that could be the metal that's likely to take off.

Should you invest in gold or silver today?

Gold and silver prices have been volatile this year, and the metals have almost turned into meme-type investments. While holding a position in the SPDR Gold Shares fund or the iShares Silver Trust in your portfolio may help diversify it, investing in these ETFs may not necessarily put you in a safer position these days.

If you're worried about the economy, however, I'd go with the SPDR Gold Shares ETF rather than the iShares Silver Trust. Gold is the more traditional safe-haven asset, and with an elevated gold-silver ratio in times of economic instability, it may have more upside this year if economic conditions worsen.

David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.