The gold/silver ratio represents the number of ounces of silver required to purchase a single ounce of gold. Today, this ratio fluctuates as gold and silver prices are regulated by market forces, but this has not always been the case. In the past, the ratio used to be fixed by law, since governments seeking monetary stability were able to set their own ratio.
Negotiating the gold/silver ratio makes sense for those concerned with devaluation, deflation and monetary replacement. Precious metals have a proven track record of maintaining their value in the face of unforeseen events that could threaten currency value.
The origin of the gold/silver ratio dates back thousand of years. Around the year 3000 BC, the first Egyptian pharaoh, Menes, declared that two and half parts of silver were equivalent to one part of gold. Although the ratio refers to the difference between raw materials, it really reflects the replacement potential between the two metals. Gold and silver both have long-lasting backgrounds both as commodities and as currencies. For the past thousands of years, gold and silver have always been symbols of great wealth.
Many silver investors believe the ratio should be set at 16:1, which is the ratio of gold to silver in the earth’s crust. Others think this ratio should drop further, since nine times more silver than gold is currently mined. Silver proponents believe that given the amount of silver used in industrial processes, manufacturing and solar panels, the ratio should be more favourable to silver than gold.
Globally, the demand for gold has increased in 2023 due to the worldwide Covid-19 pandemic. In fact, traders are still buying gold as a safe haven in these uncertain market conditions. At the same time, silver has remained more stable than gold as industrial demand is low. Consequently, the gold/silver ratio could remain at the current levels, nearing 100, for an indefinite period of time.