Take a look at an interview video from one of the silver experts, David Morgan.
Simply put, the gold silver ratio tells how many ounces of silver it would take to buy a single ounce of gold. Traditionally, the gold silver ratio was used by governments to determine the ratio of gold coins minted to silver coins minted. The first US gold/silver ratio was set by the government in 1792. Fifteen ounces of silver coin could be minted for every one ounce of silver. That means the gold silver ratio was 15:1. The ratio has occasionally been lower. For example, Ancient Egypt one had a gold/silver ratio of 1:1. Since most countries no longer rely on a gold or silver standard, the modern gold/silver ratio is set by markets, not the government. Throughout the 20th century, the gold silver ratio has ranged from 100:1 down to 17:1 during a brief time in 1980.
So what does the gold silver ratio mean to investors? Traditionally, metal investors take advantage of of the gold/silver ratio to accumulate larger quantities of the undervalued metal. For example, if the ratio were 100:1, then a hard-core metal investor would sell one ounce of gold to purchase 100 ounces of silver. Then, if the ratio changed to 50:1, the investor would sell the 100 ounces of silver for two ounces of gold. These investors do not worry about the current dollar value of the metal, just the ratio and accumulating a great quantity of precious metals. While casual investors may not want to follow this practice, paying attention to the gold silver ratio can help investors determine which metal is a better buy for the money at any given point in time.
Whenever the gold silver ratio hits an extreme value, the markets are out of balance. All systems return to an equilibrium in the long run. An extremely large or small ratio is unsustainable and the gold silver ratio will eventually swing back towards its mean value. While the historic mean value of 15:1 seems unlikely, many investors expect the ratio to fall below 50:1, which is where it has hovered in early 2012. A dropping gold silver ratio would mean rising silver prices, which are expected as the silver price slump comes to an end due to the buying frenzy caused by low silver prices. In fact, some predict that, if silver prices drop much more, a physical supply crunch could cause silver to rocket back up toward $50 an ounce in a matter of weeks. Currently, silver is a good buy. Those who purchase silver during its slump are likely to be rewarded with profits in the near future.
As long as the gold/silver ratio remains near its current levels, silver is a good choice, especially since the ratio is expected to return to its historic levels. At the current ratio of around 50:1, so one ounce of gold would buy 50 ounces of silver. However, the ratio is expected to decrease as silver values increase, meaning that those who buy silver now will be able to sell it at an advantageous price in the future.