In any event, $200 silver seems extremely far-fetched. A more relevant and realistic time frame like this would yield an average in the range of 50:1 and would imply that silver is either slightly undervalued or gold is slightly overvalued. At the very least a genuine average should limit itself to the period following the Second World War, which marks the beginning of the truly global economy. Using these periods to "average" the ratio of gold to silver is therefore going to create a highly misleading figure, which is exactly what the author has achieved. The twenty-first century economy has next to nothing in common with eighteenth or nineteenth century economies. However, anyone truly looking to get physical can't beat the real thing: bullion.ĭisclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.Īny sort of averaging that uses such a vast time period is highly questionable. Many investors that are bullish on silver buy using iShares Silver Trust ( SLV), but some prefer the more 'physical' nature of ETFS Physical Silver Shares ETF ( SIVR) and Sprott Physical Silver Trust ( PSLV). In contrast, most gold that has ever been mined exists in a vault somewhere. In addition to the natural physical abundance and production data, which favors silver relative to gold, above-ground silver inventory is constantly depleted because it is used for industrial purposes. To adjust to the 2011 production ratio, the silver price must rise to about $195/oz.Ĭlick to enlarge Source: US Geological Survey, Mineral Commodity Summaries, January 2012, Jefferson Lab. To adjust to the 2011 reserves ratio between silver and gold, the silver price must rise to about $165/oz. Reserves include only recoverable materials.Īccording to US Geological Survey's Mineral Commodity Summaries (January 2012), 2011 reserves and production for silver was respectively ten and nine times as abundant than gold. The term reserves need not signify that extraction facilities are in place and operative. That part of the reserve base which could be economically extracted or produced at the time of determination. According to the US Geological Survey 'reserves' are defined as follows: To reach this ratio with gold, the silver price would need to hit approximately $90/oz.Ī more relevant measure of physical availability is reserves and production. While this doesn't necessarily mean the deposits are accessible using modern technology, it possibly marks a natural long-run relationship between the two metals. Why might the historical gold-to-silver ratio have a natural average much lower than it is today? The chart below shows that the lower ratio might have a geological origin.Īccording to Jefferson Lab, silver is almost 19 times more abundant than gold within the Earth's crust. Geological Survey and is an estimated value that may be revised. The source of recent annual New York Market Prices for 2011 is from the U.S. Source: Measuring Worth - The source of recent annual London Market Prices is the average of the daily London PM Fix found at Kitco. If the ratio were to return to the pre-1900 average of 16.13, the silver price would have to rise to about $105/oz. But let's assume gold is priced at fair value.) (Of course, gold ( GLD) prices could also fall to lower the ratio. If silver were to rise to bring the gold-to-silver ratio back to its long-term average, the silver price must rise to $61/oz. Over this period, the average gold-to-silver ratio was 27.28 and today (March 8, 2012) the gold-to-silver ratio is 50.09. Since 1687, the gold-to-silver ratio has ranged from 14.14 to 99.76 (see chart below). While the figures are grounded, they are not necessarily forecasts. Warning: The following article contains data that some might find shocking.
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