A Fresh Look at the Gold/Silver Ratio
Source: Seeking Alpha, Roland Watson (2/2/09)
". . . when silver is suffering in a deflationary bust, it is time to buy."
I don't personally use this ratio to trade in and out of silver. Some people swear by it as a useful tool to swap between silver and gold when one becomes undervalued relative to the other. Where I come from in Britain, with the high sales tax and spreads on silver such a pursuit is not very profitable, but I know it is for others.
Where I do personally find it useful is for bigger trends in gold and silver. At one extreme, when the GSR hits 15 at the climax of a multi-decade silver bull market (as in 1964-1980), it is time to seriously think about selling. At the other extreme, when silver is suffering in a deflationary bust, it is time to buy - such as 1993 when the GSR hit 100 (only the second time in 200 years that such an event occurred). At a current value of 73 things may seem oversold for silver in GSR terms.
The GSR recently hit a spike high of 86 as silver sold off in extremis and then began a drop downwards. It appears that the low 80s may be as bad as it gets for silver during this prolonged bear market correction.