Simon Black aka James Hickman writes about the Gold to Silver Ratio
Simon Black aka James Hickman writes about the Gold to Silver Ratio
8 Trillion Reasons to buy Gold and Silver
In the 6th century BC, during the reign of Nebuchadnezzar II, Babylon flourished as a center of power, culture, and commerce.
We know this because the Babylonians were exceptional record keepers. And they chiseled everything down onto cuneiform tablets, many of which have survived through today.
Sadly the tablets aren't tabloids. They don't contain any juicy gossip or colorful stories of ancient times.
But they do offer extremely detailed-- though often boring and mundane-- records of everyday economic transactions, legal contracts, and administrative activities.
Just like future historians centuries from now should easily be able to see this evening's closing stock prices for Apple and Tesla, we can also read about daily grain prices in ancient Babylon.
One important tablet from the reign of Nebuchadnezzar II highlights the interchangeability of gold and silver in Babylonian commerce. It records a transaction where 5 shekels of silver were considered equivalent to half a shekel of gold.
(The shekel was an ancient unit of weight approximately equal to 8.33 grams.)
This exchange rate implies a silver-to-gold ratio of 10:1.
The formal establishment of fixed exchange rates between gold and silver took a significant leap under Darius the Great in the mid-6th century BC.
Ruling over the vast Achaemenid Empire, Darius borrowed the concept of minting coins from the Lydians and introduced a bimetallic standard. He decreed that one gold "daric" coin was equivalent to 20 silver coins, creating one of the first examples of an official, fixed silver-to-gold ratio.
Over time, the ratio fluctuated due to advancements in mining techniques and changes in supply and demand. And by the era of Alexander the Great in the 4th century BC, the ratio had shifted to 13:1.
Similarly, in ancient Rome, Julius Caesar established a 12:1 ratio.
Even in the early history of the United States, The Coinage Act of 1792 legally defined the US dollar in terms of specific weights of gold and silver—1.604 grams of pure gold or 24.1 grams of pure silver—establishing a ratio of approximately 15:1.
Of course, today, the silver-to-gold ratio is whatever the market decides. Ever since the dollar was removed from the gold standard more than five decades ago, the market ratio between silver and gold has ranged from about 25:1 all the way up to 120:1. Right now it is about 85:1.
Many people have an idea about where this ratio should be. Some people think that it will inevitably fall back to 50:1 which would price silver at around $53 per ounce.
Silver could certainly rise to $53 and far beyond. But not because of some preordained ratio.
Remember, there is no fixed rule or law regulating the silver/gold ratio. There's nothing stopping it from rising to 500:1.
And frankly I think it's likely the ratio could rise much higher from its current 85:1.
Just think about the catalysts that could drive both gold and silver prices much higher.
Gold prices over the past few years have been pushed to all-time highs by central banks. And as I've argued, this is a pretty clear sign that they anticipate moving on from the US dollar as the global reserve currency.
As the US national debt continues to explode higher and the federal government appears increasingly dysfunctional, it's becoming likely that the US dollar's global dominance could come to an end within the next several years.
What does the post-dollar global financial system look like? What will the next reserve currency be? No one knows.
And that's why central banks are buying gold. Because they have $8 TRILLION worth of US dollar reserves that they need to convert into something of value.
Gold, for now, represents that value. So central banks are buying it by the metric ton.
But (with minor exception) central banks do not buy silver. The market is too small, making it extremely difficult to invest billions of dollars all at once.
Silver prices are influenced more by industrial demand... and investor speculation. I'll come back to that.
I've said before that a Kamala victory will likely spell the end for the dollar's reign. This is a person who thinks that inflation is caused by "greed" and whose answer to every problem is more government spending.
The Harris deficits and inflation will likely be the proverbial straw that breaks the dollar's back. And the consequent surge in central bank gold purchases could easily send the silver/gold ratio soaring past 200 or more.
Again, while 200 is far beyond the historical average, there's no reason why it can't be even higher. Historical averages are merely data points, not firm rules.
It's far more important to pay attention to price catalysts. And gold has a major catalyst in central bank purchases.
That doesn’t mean the price of silver won’t rise. In fact, a climbing gold price alone is very like to increase the price of silver, simply because investors will speculate that it will rise.
This becomes somewhat of a self-fulfilling prophecy; investors buy an asset believing that it will rise. That increased demand causes the price to rise, encouraging more investors to buy.
We've seen this type of feverish speculation with plenty of asset classes in the past-- including silver more than a decade ago.
But in the end, if there aren't real demand fundamentals to support the price, the speculative mania always fades.
Bottom line, gold has clear demand from central banks that could send the price to absurd levels. Silver does not share the same catalyst.
Silver prices could absolutely skyrocket. But this would be far more likely due to temporary speculation (and those buyers tend to be finicky and sell quickly) rather than from true long-term industrial or investor demand.
To your freedom,
James Hickman
aka Simon Black
Very good historical references! But, I think Mr. Hickman is discounting several massive issues in silver’s favor. First, of course, is silver’s role as “money of the people”. Almost nobody will be trying to purchase groceries in gold as the dollar collapses; the parallel economy among the people will evolve in silver. At least as long as silver remains less expensive than gold. Supply and demand (see below).
Second, most silver gets used up, whereas most gold is conserved. Given that industrial plus investment demand has been growing annually and exceeding annual new mine supply for several years, now, silver is becoming more scarce whereas gold really isn’t. Widespread recycling of silver isn’t economically viable yet. Huge amounts are used in applications that aren’t recoverable, anyway (medicinal purposes and military weapons, for example). Big new silver deposits aren’t being discovered, and even though the bulk of silver comes as a by-product from base metal mines, globally synchronized economic downturns will insure less demand for base metals and hence less mining. Therefore, silver will become in ever SHORTER supply as time goes on.
Third, even as the silver supply is shrinking and future silver new supply is projected to decrease, the diversity of applications for silver in industry is increasing. More industries want more silver for more purposes. No other metal will substitute. This insures that competition for new and existing silver supplies will increase, even as the global economy heads into the dumper. The same is not true for gold. Most gold demand comes from banks and wealthy individuals using it as a monetary hedge. While demand for gold to hedge and back up currencies (think BRICKS for now) is pretty much unlimited, it is also not being pushed by absolute need. In contrast, the drive to create more weapons of war and electrify the global energy supply means that there’s an absolute need for silver. These goals will be unobtainable without silver. A shrinking world economy will not provide the same need for gold. Plus, the push to force all humans into a digital economy requires sufficient silver to run the electronics necessary to accomplish that objective. No silver, no CBDC’s!
And last but not least, the fact that silver is currently still so affordable relative to gold (thank you, government price suppression policies!) means that as the feces begin to touch the rotating blades, average people will rush to salvage whatever they can of their remaining wealth by putting their remaining depreciating dollars into silver rather than gold. Yes, this will likely create FOMO, but when FOMO meets the bugaboo of no more supply, prices will stay elevated pretty much forever. Maybe not at peak, but far above current price. And the price will rise over time from there with inflation (death of the dollar) getting a boost from increasing scarcity.
There are already signs that the main exchanges -COMEX and the LBMA - are bleeding dry because traders are getting wise and demanding physical delivery. Traders are also arbitraging what’s left in the warehouses to the higher-paying Shanghai gold exchange. (Think of the long-term stupidity of arbitraging an asset of increasing value for rapidly depreciating dollars. Oh, the humanity! 😂😂) Anyway, China is so hungry for silver that it’s not only sucking away the West’s refined silver at above market cost, it’s also surreptitiously going to miners in South America and importing their raw silver concentrate to refine at home. This allows them to import silver without having those imports tracked. Why would our greatest trading partner and biggest rival, which is currently going through an economic meltdown of its own, be frantically trying to gather every last gram of available silver in any form, if silver looked like it would forever remain grossly inferior in price to gold? Think about that!
Warnings of an impending supply crisis in silver are everywhere. At the same time, it’s recognition as a monetary metal is being revived by individuals and governments alike. In my opinion, these factors together suggest that silver will, in the not too distant future, shoot back to a 10:1 or 15:1 ratio with gold, and likely become even MORE valuable than gold.
Here’s my bottom line, for what it’s worth: silver is so valuable to governments, probably for its military applications, that they have been working for decades to suppress its price more vigorously than they have ever worked to suppress the price of any other commodity. That much we know. So that implies that silver will be the very last item of any sort to break free of the shackles of our grossly distorted and controlled global markets. Accordingly, rapid and unstoppable increases in the price of silver will be the signal that the end of the economic life as we know it is here. And with the end of economic life will come the end of ALL aspects of life as we currently know them. A new system will emerge, perhaps after multiple false starts. Nobody knows what that will look like. However, during the birthing period and into the early years of the new system, at least, gold and silver will be the only monetary items left standing. So, yes to gold, of course, but the dark horse from which fantastic fortunes will be made will actually be silver, as I see it.
This is why the markets exist … I don’t hate gold at all, but I believe silver has been suppressed since the Boxer Rebellion. I believe in silver and have never been let down.