500-year-old Ratio Shows Silver Will Catch Up to Gold
For gold bugs and other hard-asset investors, the gold-to-silver price ratio is well known. But most investors are unfamiliar with this metric.
In short, the gold-to-silver ratio represents the number of silver ounces it takes to buy a single ounce of gold.
Since silver is approximately 16 times more abundant than gold on Earth, markets have set silver prices at 1/16th of the price of gold in the past. And that gives us the historic gold-to-silver ratio of 1:16.
To calculate the current gold-to-silver price ratio, simply divide the current price of gold by the current price of silver. |
Markets have used this 1:16 ratio to price silver for over 4,500 years. But there are periods when the gold-to-silver ratio gets thrown out of whack and rises or falls to extreme levels.
For example, at the beginning of the current precious metal bull market, the gold-to-silver ratio was over 1:60.
But these periods of statistically extreme gold-to-silver ratio levels don't last. And sooner or later, the time-tested ratio returns to the historic 1:16 level.
Just last summer, the gold-to-silver ratio expanded to 1:66. Gold was over $1,200/oz; silver sat at $18/oz.
However, the gap between gold and silver prices has rapidly begun to close...
Silver to Soar as the Gold-to-Silver Ratio Stabilizes
By the beginning of the year, the gold-to-silver price ratio had narrowed to 1:48.
Today, the ratio sits at 1:32, with gold at $1,534/oz and silver trading at $48.25/oz. But the metric is rapidly approaching its historic 1:16 level.
If the price of silver would catch up to the historic gold-to-silver ratio today, the price of silver would be $95.87/oz. And as gold prices continue to rise, the price of silver would easily exceed $100/oz.
Before this secular bull market for precious metals is all said and done, I think the ratio will not only return to its historic 1:16 level; but it will actually move toward 1:10 or even 1:5.
That would push the price of silver toward $200 or $300 an ounce.
