A mining CEO recently presented as a keynote speaker at the annual Atlas 400 meeting spoke of silver as being instrumental to modern society. It’s no surprise because gold and silver have been valuable commodities since ancient times. The chemical properties of the two metals make them practical choices for coinage and a wide assortment of other uses.
Both gold and silver are relatively rare metals, which speaks to their value. Yet, they’re plentiful enough to provide us with a steady supply in mines around the globe. An estimate from the US Geological Survey suggests that the ratio of silver to gold found within the earth’s crust is approximately 21:1. This means that for every one ounce of gold present on our planet, there are 21 ounces of silver. The greater rarity of gold is why it retains a higher price point.
However, the price difference between the two metals does not match this ratio. In ancient times, the price ratio hovered in the range of 15:1, meaning that one ounce of gold was worth the same as 15 ounces of silver. Today, the ratio is closer to 75:1, which is quite a bit higher than the supply ratio.
Despite the estimated supply on our planet, the current mining production ratio is 9:1, meaning that nine ounces of silver are mined for every ounce of gold mined. The demand for silver has been on the rise, and yet the price does not reflect the demand or the relative supply. If prices were to match the supply ratio of 9:1, silver would cost approximately $136 per ounce.
The aforementioned mining CEO made comments that suggested the gap between the gold and silver price ratio vs. the supply ratio is unsustainable. Noticing these types of mismatches has often led to market changes. It’s possible that the future may hold higher silver prices, especially if demand continues to rise.
