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Gold and Silver Ratio – Is this Global Deflation?

Gold and Silver Ratio – Is this Global Deflation?

The economic and financial impact on the ongoing pandemic is more than just a demand shock. As the gold supply shrinkage continues, the gold/silver ratio garners a lot of attention from the hard-asset investors.

This blog sheds light on the meaning of the gold/silver ratio, its importance, and the current soaring trend. We’ll further substantiate your understanding regarding this ratio by forecasting a future outlook of the measurement metric.

What is the Gold and Silver Ratio?

Also known as the mint ratio, the gold/silver ratio calculates the relative value of one-ounce silver to an equal weight of gold. Simplifying further, it calculates the amount of silver required to buy one-ounce gold.

Uses & Benefits of the Gold and Silver Ratio

The following are the primary uses of the ratio under discussion:

  • Precious metal investors use the ratio to determine the relative value of silver and gold at any given point in time.
  • Regardless of price increment or decline, investors can anticipate the movement of ratio to earn profits.
  • Before the 20th century, governments used the ratio to maintain monetary stability in the country.
  • Investors use the gold/silver ratio to hedge their investments in precious metals.

Quick Timeline of the Gold and Silver Ratio

The prices of gold and silver swing daily, and so, the ratio is also subject to change. For hundreds of years, the government’s rate was pre-determined for the financial protection of the country’s wealth. Some key-notes regarding the history of the gold/silver ratio are mentioned below:

  • The average gold/silver ratio remained relatively steady, ranging between 12:1 and 15:1.
  • The Romans officially set the ratio at 12:1
  • The US government set the ratio at 15:1 in the Coinage Act, 1972
  • Toward the end of the nineteenth century, the rate stood at 17.

The Current State: Gold/Silver Ratio Spikes to a Record High

The gold/silver ratio causes significant movement in the market and the investors’ minds whenever it hit the mark above 80. But, recently, the ratio spike over 85. Moreover, the gold/silver ratio value is higher today than it was during the financial crisis of 2007–08.

What is the Current Gold/Silver Value Indicating?

The high value of the gold/silver ratio indicates a significant economic and financial crisis. Well, the industry saw it coming—the disruption caused by the ongoing pandemic affected every aspect of human life.

The ratio soared to 100 in March 2020, but silver plunged, and gold moved up! The 2019 survey of World Silver Supply indicated that 26% of silver is mined, and the rest is obtained as a by-product of other metals. This practice has a massive impact on silver’s supply, which results in the fluctuation of the ratio.

The ratio indeed implicates a declining rate of positive inflation that lies ahead despite several federal monetary and fiscal relief packages worldwide.

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