“Prices were so low years ago, I’d like to return to them,” might be a current complaint, and about everything, not just gold and silver. Before we go any further, we must realize that the gold-silver ratio is way out of whack, and has been so for several years. As of Sunday when I am writing this, the ratio is close to 88 to one, (gold is 88 times the price of silver), and the historic ratio has been 16 to 1 or even 15 to 1 at times. Gold was 16 times more expensive than silver, not 88 times! Either silver is way low, gold is way high, or even a combination of things governing the prices of everything, known as the ‘market.’
How much of each is mined, and of what value and usefulness is each? In 2011, the latest figure I can find, 23,100 metric tons of silver was mined throughout the world, and in 2011, 2700 metric tons of gold were mined. That surely is no 88 to 1 ratio, but about 8.5 to 1 as far as how much was taken out of the ground. In 1914, gold was $20.67, and silver 60 cents an ounce, or a ratio of 35 to 1. During Bunker Hunt’s attempt to control the world’s silver supply, about 1978, which bankrupted him, the ratio was 16 to 1. Does this answer the question of whether silver is over-priced, or gold under-priced? No.
Silver is an industrial metal as well as a precious metal, although not as ‘precious’ as gold. Silver kills bacteria and is used to do so in hospitals and other places where it is needed. Place a silver coin in a gallon of water which may not be pure, and the silver will purify it. Silver is used in electronics, computers, and its little resistance electricity carrying capacity is world known. I bought a set of sterling silver flatware in 1963, at Caldwell’s jewelers in Philly, and still use it daily. Caldwell’s was founded in 1839, closed in 2003, but it was absolutely one of the most beautiful jewelry stores in the world. With 17 French cut crystal chandeliers and 20 foot ceilings, it was glorious. Silver has been used in coinage for thousands of years, because it is beautiful, and requires capital, machinery, discovery, mining, milling, smeltering, and formation into useful objects. Gold the same.
Gold is tarnish and rust resistant, of a far limited amount which can be mined. Gold is so valuable, that a one dollar gold coin, when there were some produced, is so tiny, .04837 oz, 13 mm diameter, that few people carried them, they were so easy to lose. By contrast, the silver dime had .07234 oz of silver and was 17.9 mm in diameter. Both gold and silver bullion, not numismatic, are inflation hedges, and are real money for thousands of years. Is there a reason for the lopsided gold-silver ratios? I have no explanation. Will the ratio ever return to 16 to 1? Neither I nor anyone else can predict the future, but this much I do know, and that when gold is 88 times the price of silver, this means that silver requires 88 times as much storage space as gold. A hundred gold eagles with a value of about $135,000 can be held in two hands, and $135,000 in silver will be about 8,200 ounces, or over 500 pounds!
Here’s an idea. Have maybe a thousand of ounces of silver, in case of future bartering, and the rest in gold. Split the difference and using the 88 to 1 ratio, have 44 ounces of silver for each ounce of gold. I haven’t inventoried my safe in years, but I’ll bet it’s about that ratio. – Don Stott – don@coloradogold.com