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.
In the meantime, check out the 2013 American Silver Eagle while it’s on sale this week. Silver Eagles are internationally recognized for their quality and purity. There’s no better time to add to your silver stack than when prices are low.
J.H. says
The aforementioned CEO reference in the Zero Hedge piece is accurate. The data backs up the claim that the current gold/silver ratio is greatly skewed.
It is important to understand the gold/silver ratio, it is a tool one can reference to gauge price discovery. Unfortunately, it is not much more than that at this time – a tool. One only has to be in the precious metals market for a short time to hear that “gold and silver have been money for thousands of years” – or the like. Above the author refers to them as “valuable commodities”, a very wise choice of words. The author and I both know that gold and silver are not money and have not been money for some time. The Western central planners and bankers are vehemently and violently against gold and silver being re-introduced as money or in any way being associated with Western currency. They desire to keep it as a novel commodity, far away from its ability to affect the fiat system. To repress it to manipulate it. Oh yes, some sovereign gold and silver coins have a currency denomination stamped on them, but far below its current spot value.
When one buys precious metals in many ways one is insuring against a total loss of wealth in the event of a fiat system collapse. The logic is that when the fiat system resets that the new system will be backed by precious metals; and that is possible, or in the interim, that is the time between fiat collapse and a reset, that precious metals will soar to incomprehensible levels.
The gold/silver ratio is skewed because the gold/silver price is manipulated. Are these unsustainable? I believe they are unsustainable, but it is a testament to the great power the central planners and bankers at how they have held their system together for so long based on ink stamped paper and “the full faith and credit of the United States”.
ProvidentMetals.com says
Thanks for sharing your insights, J.H. I think many investors share similar views about precious metals being a form of insurance against an economic collapse.