A lot of talk on the web right now says silver is significantly undervalued vs. gold. Many of these pundits and talking heads like to point to the historical relationship between gold and silver prices, sometimes known as the "ratio." People even comment as to this connection as far back as thousands of years ago. Let's take a quick look at this.
Silver, thousands of years ago, was originally thought of greater value than gold, both because it was relatively scarce in great civilizations such as the Egyptians, and because it was easier to work into useful materials. Both silver and gold have been used abundantly for ornamentation and as a thing of beauty in homes, temples and palaces. Then of course as jewelry their beauty was very much esteemed.
However, once gold was found in increasing abundance and man's metallurgical skills improved, gold soon took over as the leader and the metal given greater value. Although silver would not lose completely that position, it would fall into the number two spot. One of the main reasons is gold's ability to be beaten and stretched to great lengths and still maintain it beauty. But the most important of its properties was that it did not tarnish. In a thing of art and beauty this is an important factor and one that still to this day maintains gold's lead over silver for prominence in the jewelry industry.
Getting back to the ratio, as time went by silver would continue to be found in greater abundance than gold. So the differential moved to a 10 to 1 relationship in medieval Europe, and was then fixed at 15.5 in England by Isaac Newton when he was Master of the Mint in 1717. That's almost exactly the ratio of unearthed silver to gold in the ground worldwide. As recently as the early twentieth century we had gold and silver at a 20 to 1 ratio when silver was coined as $1 and gold was $20 in the United States.
Now we are looking at the current ratio 53.15 as of this writing. It sounds high looking at historical standards. What about recent history?