Gold and silver both played a role in past bi-metallic monetary standards. Even if silver isn’t made money again, its value is likely to increase more than gold.
Historically the silver to gold ratio has been about 15:1.
15 ounces of silver would buy 1 ounce of gold. Today that ratio is over 80:1. At time of writing, the price of gold is $1300. Silver would be worth $86/oz with the historical ratio of 15:1.
I attribute such disproportion exclusively to ongoing price manipulation.
The disproportion is definitely not a supply issue. Today there are approximately 4.5 billion oz of above ground gold in existence. Practically all the gold ever mined still exists, and is accounted for.
Silver however, has been extensively used in industry.
Old electrical contacts, photography, and more recently, electronics. This silver is used in such small amounts that it’s not economical to recover, therefore, thrown away. Our industrial use for silver is growing with our dependence on technology. Today we see it used in solar panels and many other applications.
There has been about 50 billion ounces of silver ever mined. It’s estimated that half that silver has been lost forever. Leaving us with an estimated 25 billion oz actually available.
4.5 billion oz of gold and 25 billion oz of silver. Surprisingly, gold is only 5.5 times more rare than silver! As mine supply slows and industral use grows, it’s likely the difference becomes even narrower, as it has over the last 100 years.
Billions of oz each sounds like big numbers, but not really.
There are over 7.6 billion people in the world! Using our numbers, that’s 0.6 oz of gold and 3.3 oz of silver per person. Said another way, at today’s prices, only $780 worth of gold and $50 worth of silver per person!
Obviously not everyone can have their share at these prices. If there were ever a rush on gold and silver, the availability isn’t here. Most this existing supply wouldn’t even be for sale! It would be held tightly by long term investors. Only a small fraction of the population needs invest to push the prices much higher.
Simply because of affordability, most people will choose silver over gold when investing in precious metals. Unknowingly to most though, the reasons may be quite different. I am of the opinion that only gold will play an official role in our next monetary system.
Governments and central banks don’t generally hold silver today.
They hold gold exclusively. Of course, the governments will be the ones implementing a future monetary standard. With our abilities to transact ownership digitally, there is no reason to use silver as money. We may just print small strips of gold between bills for physical use.
But more than ever, silver is necessary for industrial use, further excluding it from being money today. Good money has little use for anything other than…money.
Regardless of what standard government sets, people will seek silver and even platinum to store value along side gold.
Based on the small amount of existing gold and the values of each, it’s likely that a historical 15:1 ratio comes. It’s possible even a value ratio of 5:1 silver to gold ratio becomes reality! This idea is based purely on the need for people to store value regardless of government mandates, plus the industrial needs for this amazing metal.
Such a fairer ratio will come as gold rises in price.
As the value of gold increases, silver will likely increase in value even more. Even if governments set a purely gold standard, silver may continue to increase.
One thing is clear, the two metals are closely related in peoples minds and history as well. Our current ratio of 80:1 is not rational based on any ultimate outcome.
Those investing in gold should look closely at silver too. I do believe the historical 15:1 ratio is most likely to prevail during a rush on the metals. This means silver will return at least 5 times more profit than gold at the peak!