The Gold/Silver ratio (GSR)

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#1 Wed, Jun 15, 2011 - 10:17am
Joined: Jun 14, 2011

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.


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:

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: silvernomics on Nov 8, 2014 - 5:09am
Wed, Jun 15, 2011 - 10:55am
Joined: Jun 14, 2011


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.

Wed, Jun 15, 2011 - 12:07pm (Reply to #2)
anaheim, CA
Joined: Jun 14, 2011

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.