Gold and Silver Supply - Will the Real Ratio Step Forward

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 and Silver Ratios

The following bullet points provide some facts you can use in your silver/gold ratio analysis.



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Above ground:

• 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.

Below ground:

• 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 today, spot silver is trading at $32.65 per ounce, while spot gold is priced at $1724.00 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 U.S. 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:

1. You get more physical silver for the fiat money you spend.2. Silver investors stand to gain more as the silver/gold ratio falls.3. Silver is more suitable for people with smaller amounts to invest.4. 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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What Other Visitors Have Said

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Gold/Silver ratio -- And Unforseen Circumstances Not rated yet
I read a great comment on here giving great fundamentals on gold/silver ratio becoming to 5:1. I respect the whole article BUT my take is: his guess …

Silver to gold ratio Not rated yet
Here is another one. In 1900 there was 1 billion ounces of gold at $20.00 per ounce = $20 billion In 1900 there was 12 billion ounces of silver at …

Andy Not rated yet
I feel like the ratio will go under 5 to 1 gold to silver. Rational is as follows. Assumptions: 1) Amount of gold above ground around 6 billion …

WastingtonDC: Not rated yet
I seem to remember an article that revealed that my favorite antique 1884 Colt .45 Peacemaker cost the original buyer some $12.50 in silver, or an ounce …

maurice snook Not rated yet
This article is excellent, as all others have been too. I share your enthusiasm for silver and gold. I also endorse the thought that silver is preferable …

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