The Gold/Silver ratio (GSR)

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silvernomics
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The Gold/Silver ratio (GSR)

As at the birth of Turd's new website the ratio is 43.

Where is it headed?

There is a wide body of believers within the contrarian community that the ratio is inexorably headed down towards 15:1 in the long term.

Why?

This roughly reflects the relative amount of gold and silver in the earth's crust and relative levels of mining.

The Coinage Act of 1792 established a 15:1 ratio in the USA: http://www.constitution.org/uslaw/coinage1792.txt

France followed in 1803 with a 15.5:1 ratio.

From 1816 to 1919 the definition of £1 in the UK was either one gold sovereign (0.2354 troy oz. of gold) or four sterling (92.5%) silver crowns, ie about 3.36 troy ounces, resulting in a similar ratio to France and the USA.

But due to a hundred years of industrial consumption of silver,  the ratio of above ground refined silver to refined gold is no longer in the region of 15:1. It is more like 1:3. And the ratio of silver to gold produced every year after discounting supply absorbed by industrial demand is about 6.7:1.

Because of these fundamentals, Eric Sprott has gone on record repeatedly with the view that 10:1 is a credible target.

I guess it comes down to how far silver will travel on gold's coat-tails as big money (public and private) bids gold up to escape systemic collapse.

Since there is so little silver out there, I don't think it will take much in the way of demand to keep silver at least apace with gold. In my view, the true silver-to-gold ratio is not 15:1 but 1:12 - for this reflects the current market value of all the silver in existence (c $80bn) versus all the gold in existence (c $10tn).

Considering that there are 100 billionaires in the world with a net worth of more than $10bn, the ten largest companies in the world each have a market capitalisation of more than $200bn, and the size of the global bond market is more than $80,000 billion, I don't think it is a tough task to envisage what will happen to the world's $80bn of silver when the race for $10tn of gold begins to accelerate.

Edited by admin on 11/08/2014 - 06:09
SilverTree
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GSR

15:1 may be the "in earth" ratio but as you said, "a hundred years of industrial consumption of silver" will push it lower.

I could imagine a GSR price ratio eventually get to 1:1 or better. yes

funthea
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keep in mind

Keep in mind that while the lowered ratio of above ground silver may in fact be well below the naturally occurring  ratio in the earths crust, I suspect there is still much in the earths crust that we have not found... yet.

In the long run, the above ground ratio can climb expedientialy with the proper motivation.

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