Wednesday, March 9, 2011

What is the Gold / Silver Ratio?


The chart (above) shows the gold / silver ratio for the last few years. The ratio simply put describes how many ounces of silver will buy one ounce of gold. Historically, the ratio was pegged at 16 ounces of silver to one ounce of gold. Indeed, this value relationship of the two precious metals actually mirrors their relative abundance in the Earth's crust.

In more recent times the ratio has swung heavily in favor of gold as silver was demonetized, averaging around 55. Currently the ratio is about 40x and thus above the median of 55x. This means that silver is attractively valued relative to gold. A low was hit in 1920, when 15 ounces of silver would buy 1 ounce of gold. 1940 saw a row of historical highs, when one ounce of gold bought 100 ounces of silver. We experienced similar values in 1990.

Looking back over the centuries, we find that gold has been substantially more expensive since the beginning of the 20th century than in the previous three centuries. The long-term median (since 1687) is 15.7x. This also reflected the actual ratio of physical supplies: gold is about 16 times more scarce than silver. According to USGS, the measured and assumed silver resources are about 6 times as high as the ones of gold. Therefore silver is at the moment clearly undervalued at a ratio of 40x relative to gold.

Note: 3/25/11 - GOLD/SILVER RATIO touched more new lows this week. Closed today at 38.486. Shhhh -- Listen. Come close and I'll tell y'all something you won't hear anywhere else, but don't tell anybody. At 38.486 the ratio stands below its 10 year, below its 20 year, below its 30 year, below its 50 year, below its 60 year, and below its 110 year average. In fact, it's nearer the 220 year average than the 110 year. Put that into perspective: the 10 year average is 60.53, 22 points higher.

[Using a gold:silver ratio of 16:1 equates to a price of $90 per ounce for silver based on the current ballpark price of $1430 per ounce for gold and suggests a price of $650 if gold were to reach a parabolic top of $10,400!]

Time is running out fast! Hyperinflation seems unavoidable as fiat paper money is being printed as fast as the US presses can run. To protect your wealth and your family, buy gold and silver now from these top companies (below):




  1. One of the issues I have with the Gold-Silver ratio is that historic trends were in part based upon a supply ratio that no longer exists. Many of the decades or hundreds-year plus charts were when silver bullion existed in vast stockpiles at a multiple of gold bullion. Now the reverse is apparently true; silver bullion is more rare than gold but trades much cheaper than gold. It will be interesting to see what the new stable multiple will be as supply and demand factors overtake paper trading where prices are set today.

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