Those attracted to the precious metals markets are often curious about the various ratios existing between gold and silver, as well as what these ratios might reveal about the relative fair values of these key investment metals.
Various Gold & Silver Ratios
The following bullet points provide some facts you can use in your silver/gold ratio analysis.
Investment grade: The ratio of investment grade gold existing in bullion form is as much as five times that available for silver.
Everything else: All the gold ever mined has been estimated at 160,000- 170,000 tons of gold or roughly 5 billion troy ounces. A reasonable estimate for the total amount of silver mined is 56 billion troy ounces. This makes the “ever mined” ratio roughly 11.2 to 1.
Potential: The below ground ratio of silver to gold has been estimated at 17 to 1.
Actually Mined: Typically, 10 ounces of silver are actually mined for every 1 ounce of gold mined. On an annual basis, roughly 900 million ounces of silver are mined overall compared with just 90 million ounces of gold.
The Paper Markets:
The ratio of the price of silver to gold as recently determined by the paper futures market is roughly 53 ounces of silver to one ounce of gold.
As of Thursday, spot silver was trading at $32.65 per ounce, while spot gold was priced at $1,724.00 per ounce, making the price ratio a remarkably high 52.80.
Other Factors to Take Into Account:
Sequestration: Both precious metals are highly sequestered and accumulated by individuals for strong psychological reasons, and so they are typically held by strong hands.
Industrial Demand: Silver is typically consumed by its industrial applications, such as in medicines, photography and solar cells. Gold is used much more sparingly by industry and is more likely to be used in readily recyclable applications like jewelry.
Coin Investment Demand: According to the US Mint, roughly 50 times as much silver is being bought compared to gold for coin investment purposes.
The Ratio on The Street
Given the various ratios mentioned in the previous section, which are typically much lower than those observed in the paper markets, one must be left wondering just how such a high silver to gold price ratio can be sustained over time in the commodity markets and on The Street.
Although peak silver may never come in our lifetimes, this supply and demand situation indicates that silver’s price is very likely to rise relative to gold over the longer term, thereby reducing the silver/gold ratio substantially.
More Reasons Why Silver Should Rise Relative to Gold
Need some more reasons that the price of silver will soon be playing catch up to gold’s price?
Although gold may be easier to hide or carry than silver due to it being more valuable per ounce, and both silver and gold can be purchased in investment grade forms, consider the following benefits of owning silver:
You get more physical silver for the fiat money you spend.
Silver investors stand to gain more as the silver/gold ratio falls.
Silver is more suitable for people with smaller amounts to invest.
The average person buying silver has a store of value and a backup hard currency in smaller denominations that are more easily spent for necessities.
Of course, you can always easily trade your silver for gold, and vice versa, while other commodities are not nearly as easy to barter with.
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