Gold/Silver Ratio - 16:1 or 1:1?... 3 Years, 9 Months ago
Being new here, I thought it time to speak up, introduce myself, and ask my first potentially really stupid question...
It's about the gold/silver ratio. Before you decide that we've heard all this before, just let me explain... We all know that this has traditionally been recognised as something like 16:1, 15:1, 17:1, or even 20:1, which I've seen quoted just recently. But some may find it strange that at some points in history, certain cultures held this to be 1:1. I believe it was the ancient Egyptians who recognised this ratio. Why? The usual reason for any traditional gold silver ratio is that this is the proportion that the two metals are found with respect to each other in the crust. I see no reason why the Egyptions weren't the same. So why 1:1? Could it be that this is the proportion that Egyptions found gold and silver in the crust? If so, how could this be, when everywhere else, it's more like 16:1?
So I got to thinking, putting a number of seemingly disparate facts together and working out another way of seeing the gold/silver ratio that may surprise people. Or may make me just look like a fool... But if it's wrong, please tell me where the logic went wrong, so I can think it through again.
OK, so for the sake of argument, let's assume that the Egyptians found gold and silver in roughly equal quantities. Could there be some reason for this? Silver is found in quantities 16 times greater than gold on the surface, but in more recent times, miners have been finding that deeper down, silver is very much harder to mine than gold. It seems that the silver reserves have been depleted, and that these were on the surface.
I remembered a documentary I watched not long ago on the mining of silver, and it covered the topic of why silver is found on the surface. It "froths" to the surface as a result of ground water action. Thus silver which is formed deeper down is carried to the surface and concentrated there, such that the silver on the surface is now 16 times as plentiful as the gold - on the surface. No doubt the gold doesn't froth to the surface, at least as much as the silver, due to its density.
But what if, where gold and silver is initially deposited deeper down, they are actually deposited in roughly equal quantities... Then the frothing of the silver to the surface would do two things - concentrate silver at the surface, and dilute silver deeper down - precisely as miners seem to have discovered. This would also explain why the Egyptians held that the gold/silver ratio was 1:1 - to them, with very little ground water in the desert environment to act on what silver was there, it stayed where it was in proportion with the gold and so was found in roughly equal proportions with gold. (I know it's a stretch but let's not ruin a good story...)
I keep reading the figures 16:1, 15:1, 20:1, trotted out without thinking like schoolkids reciting rote facts. The reality, at least these days, is that silver is now much harder to find and mine than gold. All the easy silver is gone. And at the more recent prices, it's gone for good, because noone cared enough about it to try to reclaim any but the largest amounts (bullion, coins, jewellery and silverware). So what? The gold silver ratio is 16:1 right? That means that even though we've used up what silver we had, there's still 16 times as much silver in the ground as gold, right? Well, I think I've made a fairly strong case that there actually isn't at all. In fact, perhaps there never really was...
Assets have the value that the market attributes to them. Silver has "traditionally" been considered the poor man's gold, being some 16 times less expensive than gold. More recently of course, it's been devalued somewhat by being "lowered" to the ranks of an "industrial metal" - only the most useful single metal on the planet!! Far from this making silver less valuable, it has simply exacerbated the shortage.
So let me put all this together - silver, the single most useful metal on the planet, has been used up - all the easy deposits (on the surface) have been mined and most of the above ground stocks have been destroyed in industrial processes, and not reclaimed because, well, silver's cheap, right? But now it's in short supply, and due to the REAL gold/silver ratio of more like 1:1, that would predict and indeed we find this true, that there is now far less silver in the crust than gold. Yes, all the surface silver is gone, but if the ratio was really 16:1, then it should not be harder to find silver than gold, the deeper we go - but it is!!
I think the world of precious metals is in for a very rude shock sometime very soon. We are going to find out that silver is not at all the poor man's gold, that in fact, gold is far more abundant now than silver and that we will now never see the day again when silver is not rarer than gold. I know that in a lot of ways I'm not saying anything new, there are plenty of silver bulls here. I just gave you a potential reason why being a silver bull is probably one of the more prescient things one could do.
Re: Gold/Silver Ratio - 16:1 or 1:1?... 3 Years, 9 Months ago
First off, robins, to quote one of my current profs, "The only stupid question is the one I just answered." So you're off the hook there.
Your idea's definitely worth considering but I'm missing something here.
Do you remember the documentary's title? I'm not a chemistry master, but I know enough to know when I'm in over my head - and I can't connect the dots on how the silver would froth to the surface. Density doesn't matter when something's dissolved in a fluid (say water) but when the stuff starts precipitating out of the water density starts to matter. At that point gold's high density would pull it to the bottom of the water table. So it makes sense to me that gold would be more common deeper underground.
(I've also heard that scientists have reason to believe gold is much more common in the Earth's mantle, the layer under the crust.)
Re: Gold/Silver Ratio - 16:1 or 1:1?... 3 Years, 9 Months ago
Lloyd, definitely nothing "stupid" about your analysis. In fact, it's a fascinating topic. Unfortunately, I can't add anything to it myself, because I don't have a sophisticated enough understanding of geology.
Does science REALLY have a "handle" on the composition of the Earth? I don't know what level of certainty we should assign to that.
Fortunately we don't NEED to know any of this at the moment. With the ratio still at 50:1 (LOL!), we know that silver will significantly outperform gold going forward.
However, for those thinking of loading-up even more heavily on silver, because it MIGHT be much, much more scarce than we think, we should look at the NEGATIVE implications of that statement.
We NEED silver for our modern technologies. While many people have talked about "gold confiscation", IF silver is in such critically short supply "above ground", and much less prevalent below-ground than we previously believed, then maybe what we should be worrying about is SILVER CONFISCATION?
Understand that it's NEVER a good idea to get too "over-weight" in any investment. While most or all of us sincerely believe silver will do much, much better than gold going forward (and have good reasons for this belief), this doesn't mean we can afford to go "all in" with respect to silver.
Maintain BALANCE in one's precious metals holdings. While this doesn't have to be "50/50", we shouldn't allow ourselves to hold too extreme a ratio of silver.
Re: Gold/Silver Ratio - 16:1 or 1:1?... 1 Year, 2 Months ago
robinsld wrote: agau asked me to reopen this discussion. I think it's still relevant, so here is my original thread from years ago.
I'll make an effort to find some of my original sources for this information.
P.S. Yes, it's really me - an earlier userid that I lost the password for...
People need to understand that these two ratios refer to two, totally different measurements.
There are two ways of comparing the amounts of gold and silver in the world. We can compare ABOVE-GROUND stockpiles; or we can compare the two elements based on their natural occurrence in the Earth's crust. So with respect to the 16:1 figure; that refers to the ratio of these two metals in the Earth's crust. I've actually looked at a few numbers here; and they round-off better to 17:1; but that's just "margin of error" talk.
With respect to the other ratio -- above-ground stockpiles -- no one has an exact number here. People attempt to come up with ballpark figures using various proxy-measurements; but it's simply not possible to quantify total stockpiles precisely for a metal we have been mining/refining for 5,000 years.
I've seen ratios expressed anywhere from 6:1 to 1:1 in recent years -- and nothing higher than 6:1. So given those crude parameters (and the fact that markets almost inevitably OVER-CORRECT); this is why I've been comfortable talking about the price of silver briefly reaching parity with the price of gold.
Ultimately the most-important ratio is the natural occurrence of the two metals -- since it validates the long-term PRICE RATIO (15:1) between the two metals. Based on natural occurrence; one INSTANTLY (and conclusively) knows that the current price-ratio is totally fraudulent.
Re: Gold/Silver Ratio - 16:1 or 1:1?... 1 Year, 2 Months ago
The actual most oft-quoted physical, crustal silver/gold ratio is 15:1. The 16:1 ratio adopted by England was most probably a simplification allowing 16oz (1 pound) of silver to be equivalent to 1 oz of gold. This was the original "Libera Pundo" (or perhaps Libera Punto) (Pound) from which the Pound sign gets its "L". Later this "Pound" was reduced (devalued?) to 4oz of silver and 1/4 oz of gold (the gold Sovereign). The 16:1 price ratio was adopted by England, presumably due to the simplicity in relation to the pound.
However at this present moment in time, the ratio of available above ground silver to gold is actually reversed, and more like 1:9, due to the fact that so much of the silver has been consumed and/or thrown away as too cheap to bother reclaiming. Still, people don't concern themselves with that, as there is, of course 15 times as much silver in the crust as gold (or 14, 16, 17, or 20, depending on which ratio is being quoted). This is the same ratio you quoted (16:1 or 17:1) without any concern as to whether it's correct, as it's just assumed to be correct.
However, the point of my original post was meant to throw doubt on that assumption, which you seem to have missed both then and now. Just quoting 16:1 or 17:1 or whatever, because that's the accepted ratio, is the reason mankind has got itself into this little pickle. There simply isn't that much silver available, even in the crust.
The ancient Egyptians found silver and gold in equal quantities (1:1). Electrum, an ancient naturally occurring alloy of gold and silver is found with >20% by weight of silver, indicating that the two are often deposited together, and in roughly similar quantities when this occurs. Today, while it is assumed that the historical 15:1 ratio is still valid, testable results of that assumption are proving that it's not. It is, for example, simply assumed that for both gold and silver, if you want more of the stuff, you just dig more and deeper. For gold, this is valid and the deeper one digs, the more gold one finds. For silver, however, this is turning out to be false. The deeper one digs, the LESS quantities of silver are being found. The documentary I watched at the time of writing of my original post made it clear that at that time (more than 2 and 1/2 years ago) silver was already 40 times more expensive (by effort) to mine than gold, which is the primary reason that silver mines are now not viable.
My contention at the time of writing my original post was that the accepted 15:1 physical ratio of silver to gold in the earth's crust is not correct. Perhaps I didn't make it clear then but I will now, that I'm directly challenging that. As you wrote, Jeff: So with respect to the 16:1 figure; that refers to the ratio of these two metals in the Earth's crust. I've actually looked at a few numbers here; and they round-off better to 17:1; but that's just "margin of error" talk.
This is what I'm now saying to you appears to be just an accepted figure, not a valid one.
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