The Case for the 1:1 Gold to Silver Ratio

If there has been one main thing that I have been pushing on this blog, it has been get out of ALL paper assets and into real assets. You may have not felt it over the past month, but the markets are listening. I wrote on July 24th in Another Silver Drive By Shooting Coming? that we were at a key moment where the dollar was poised to break down and that Gold and Silver were about to explode. This idea added to the debt ceiling talks and the opening of the Hong Kong Mercantile Exchange and that gave me the feeling something BIG was going to happen. I thought with the mass shooting in Norway we were going to get another silver drive by shooting like we saw after the OBL buried at sea lie. What that feeling turned out to be was a massive shift out of paper assets into real assets.

Gold has been on fire versus the S&P 500, the Dow and the 10-Year Treasury. This action says to me that very big money like China, South Korea, Mexico,  Hugo Chavez and massive funds are moving huge money into real assets and out of paper assets. I believe that this “smart” money finally sees the futility of owning paper assets with a US and European governments content on being the spender of last resort and a Fed and ECB willing to be the lender of last resort. Couple this with an ever slowing economy, a double dip in the housing market and the inevitability of QE3, owning paper assets is suicide.

I wrote in my article 10Reasons Why Gold is the Gut Reaction… that when people first buy real assets, they tend to go to gold first. I believe all of these big guys piled into gold, but this will spread throughout all commodities soon. This action is also very significant because the 4 markets mentioned above are huge in terms of the amount of money it would take to move the markets as much as we have seen in the past month.


If you missed that huge move between gold and the major paper market, don’t worry.  The major rush of humanity out of a mathematically inevitable collapse of the dollar, the world’s currencies and markets will send all real assets to the unprecedented heights.  I believe that silver is going to do phenomenally well relative to not only all paper assets but even against gold. I think there is a strong case that can be made that we will go below the 1:16 or 1:10 ratio, possibly all the way down to a 1:1 gold to silver ratio.

(Please note that I do not play with the fun game of guessing the dollar price of gold or silver. While it is fun to throw out numbers like $10,000 gold or $1,000 silver, the reality is that I do not care what the dollar price of silver is, ever. I am investing in silver because the dollar is going to become useless as a Confederate Note. I would not consider selling one ounce before the collapse of the dollar. Whatever the new monetary paradigm is created out of the ashes of the dollar, whether it is a new dollar or a gold or silver currency, there will be tremendous opportunities to by thoroughly inexpensive income producing assets for nothing. I will hold until that day. Read: Who Cares About Your Bet, If The Casino Is Being Demolished?!)

If you cannot or should not use the dollar as your measuring stick for your assets, then the best way for determining relative value is ratio investing. If you look throughout history there is the 1:1 Dow to Gold ratio during the 1980 peak of gold. The one that I like the most for silver is the 1/1oth of an ounce of silver for a day’s wage for hard human labor. (Read: Honest Work For Honest Silver Pay or Retire Off Of $30,000) The gold to silver ratio is probably the best known ratio and it currently is at 1:43. I know that by any logical sense that silver is extremely undervalued relative to gold, besides any other factors that are extremely bullish on silver. (Read: The Ultimate Silver Investor.)

1. The historical monetary ratio of gold to silver is 1:16 to 1:12, which means that silver should rise 200%+ faster than gold.

2. The natural mining ratio coming out of the Earth of gold to silver is 1:10, which means that silver should rise 350% faster than gold.

3. The ratio of gold to silver at the CRIMEX is 1:9. There is 11,575,304 ounces in total registered and eligible Gold holdings and 105,694,470 ounces in total registered and eligible silver holdings. (In late 2008 there was approximately 3,000,000 ounces of Registered gold at the CRIMEX and 85,000,000 ounces of registered silver, that was a 1:28 GSR back then.)

4. If we understand that all of the gold ever mined has been treasured by humanity as a truly precious metal, while silver has  been used and abused as an industrial metal, this Gold to Silver ratio must be lower than either of the above ratios. Most silver is used in such small quantities that it is uneconomical to try to recycle a few grams out of an old cell phone.

5. All of the major stockpiles of silver that all of humanity ever mined are gone. The US government had 5 billion ounces of silver in 1950. Only 29 million ounces in the Registered vaults of the CRIMEX.

6. Silver is second only to oil for the amount of uses of any commodity. It is the indispensable metal with so many vital uses. As we move from a carbon economy into a new technological economy, silver may become more vital than oil to the next paradigm with its uses in solar, tech and medical industries. These industries are incredibly profitable industries and they use such small quantities of metal that the price is unimportant. This demand for industrial use makes silver more important than gold.

7. Silver has started to catch investment demand, but so far most of the money has gone into paper derivatives of silver like SLV, futures or mining stocks. At some point investors are not going to settle for anything less than the real physical metal. This should have a dramatic effect on the price of silver due to all of the blatant price manipulation pointed out by Andrew MacGuire. He and others have claimed that there are as much as 100 to 1 paper ounces of gold and silver traded for every physical ounce of gold and silver available. The day they can’t deliver there will be a mad rush to claim the real metal from industrial users and investors alike.

8. Silver has naturally been used as money more times and more often than gold. In a world about to lose faith in all paper currencies, silver will once again find a unlimited demand to be used as money once again. This demand on top of the investment  and industrial demands will be a powerful force on the metal that gold simply does not have. (Read: The 3 Demands of Silver.)

9. There is already a 1:1 ratio of dollars invested in gold and silver in Sprott Asset Management , GoldMoney and the US Mint. The 1:43 ratio we currently have cannot sustain that much of a dollar demand difference, without coming closer to 1:1.

10. The 1:1 Gold to Silver Ratio has happened before.

“For the first time in history, silver coin, of the leading nations of Europe sold at a higher price than gold coin. This of course does not mean that silver is more valuable than gold, merely a silver dollar or shilling is worth more than a gold dollar or shilling.”
Silver the World Sensation in 1919-1920
January 24th, 1920

“Are the New York financiers living up to their claims of honesty that they made
so vociferously in 1896, or are they paying their debts in a cheap gold dollar?’.’ asked Mr. Bryan
the other day when the bullion value of a silver dollar had soared beyond the bullion value of
a gold dollar.”
The commoner. (Lincoln, Neb.) December 01, 1919

“With the bullion in a silver dollar worth five cents more than bullion in a gold dollar the cross of gold does not look so yellow and the crown not so thorny as it was”
Source

Silver coinage throughout the world is worth more at bullion value than the par value of gold coin. For instance, 5,900 British shilling coins contain just 1,000 Troy ounces pure silver, but are worth 6,929 shillings at the market price of 77 pence for British silver bullion. Over 1,000
shillings is the premium on the market value of 1,000 ounces of pure silver over the coin value in British coinage. The 5,900 shilling coins were worth 346 in the silver bullion market, and only 295 at par or gold value of 295 in gold sovereigns or in gold bullion;…
Mohave County miner and our mineral wealth. (Kingman, Ariz.) January 24, 1920, Source

William Jennings Bryan:
“I’m too much perplexed by the news of the day. The morning papers announce that
the bullion In a silver dollar Is now worth five cents more than the bullion in a gold dollar.
The shock upsets me. I am not able to speak with composure. My thoughts insist on running
back to 1896, when the self appointed champions of an honest dollar vociferously declared
that their consciences would not allow them to pay their debts In any but the best money. I
am patiently waiting for tho afternoon papers to learn whether these men are paying their
debts today In silver dollars at a premium or whether they are using the cheap gold dollar
for liquidation purposes. If I find that they are using gold coin, now five cents below tho
silver equivalent, I shall suggest the appointment of a congressional committee on conscience
to ascertain why these men who used to profess so highest standard of patriotism and honor,
have fallen from grace….”
Source
The commoner. (Lincoln, Neb.)December 01, 1919,

“For a silver mine today is more valuable than a gold mine” (Source.)
The State of the Union by Archer Wall Douglas
The Independent April/May/June 1920

(Special thanks to row5_seat47  on Kitco for the info.)

11. Finally, the USGS said that silver has the very real possibility of becoming the first element on the periodic table to become extinct by 2020. That is in 9 years! That is less than 9/11 ago. This means that unless there is a massive revaluation of silver and we keep consuming silver at this pace, there will not be any silver left. This alone should make silver rise to unprecedented heights. (Read:The Ultimate Silver Investor for more info on silver.)

Keep Stacking!


Hint… Hint… ;)

 

 


 

37 comments to The Case for the 1:1 Gold to Silver Ratio

  • colin

    there will never be 1 to 1 au-ag ratio. 10x more silver is mined every year. Sure we used up all the silver, but going forward, we mine silver 10-1 withouth even having dedicated silver mines, because it too cheap. Perhaps 5-1 would be fair

    • Silver Shield

      During the fall of the Roman Empire barbarians demanded 1 ton of gold and 1 ton of silver as ransom to not sack Rome.
      They did not come up with it and they got sacked.

      I think that silver will over shoot 1:10 by a lot but the real value is going to be against paper assets.

      There is more demand and less silver.

      There is a lot more people in the world and a lot less silver than 1950.

  • Great article Chris! I guess great minds think alike as this was the topic of my last interview with Jeff Nielson. The link is here http://www.youtube.com/watch?v=8CFclTaxItc . Let me know when you have time to do a follow up interview about the Rothschild family.

  • lastmanstanding

    Gold blew by the $1,900 mark today…Ag on the move.

    “ladies and gentlemen when all the chips are down…you’ve got to pay to play or else you fold!” final stanza of ‘Calcutta Auction’ by the Micheal Stanley Band from Stagepass…performed/recorded live at the Cleveland Agora 1977…

    SS you had better check it out!

    The planet is responding to fiat…you had better be preppin ‘n’ stackin..or else you fold!

  • psychosn4ke

    Great article SS ;)

  • professorlock'n'load

    So, where do the present production costs enter into the 1:1 equation? Silver around $5-$7 and gold about $600-$800 ? Also, what if SLV, GLD and others experience a redemption run, won’t they have to sell gold and silver into the market to make payouts? Would this not result in falling prices?

    • Silver Shield

      Sounds like silver miners would make a lot of money if they don’t get nationalized.
      Production is not going up dramatically despite silver being up 400%
      China went from largest exporter to largest importer. Big swing in a small market.
      Quadrillions in paper assets are going to want metal and they don’t care about paper silver.

      You assume that there is all of that metal in SLV and GLD.
      Andrew maguire says the fraud is 100 to 1
      The 8 largest shorts are net short 150 days of global production, that will not unwind easily.

      Why sell metal if all currencies are going to their intrinsic value?

  • Bob

    I have heard many of the themes expressed in this piece, but it’s always great to hear them again. You’ve done a great job, Chris, tying them all together. Great piece!

  • BS

    I read that gold is more pure than silver because its not include oxides or sulfide…

    They will treat gold as money and silver as a use for stuff =(

    This up leg in silver looks like a correction to the upside now maybe we will see it going to 25-30

    • Silver Shield

      I sit and wait as I have been proven over and over again since 2005 that silver is the place to be.

      The rest who do not understand the opportunity of silver will remember the day when silver was $40 an ounce and did not buy.

  • SSA-Ed

    The USD price of silver and gold appear to swing somewhat independently. Since about 2000, I have tended to buy silver when its price is ~2% of gold or less, and sell silver when it’s at ~3% or more. Both thresholds were crossed in a three week period at the end of April-2011; a rarity indeed. Based on this paper, I may have to make adjustments I had not anticipated before. Thank you.

    • Silver Shield

      The dollar is an illusion within a riddle wrapped in an enigma.

      Silver is real and the two have no bearing on each other, except what you make of it.

      In the end the dollar will fail and silver will continue to be just as it was before, except what you make of it in the future.

  • Kkyro

    Silver and gold will be outlawed in the near future.

    You may own it and it will preserve your purchasing power, but you won’t be able to use it unless you are willing to risk confiscation or even imprisonment.

    “Competition is a sin.” -J.D. Rockefeller

    • Silver Shield

      Freedom will be outlawed in the near future.

      You may have it, but you will not be able to use it unless you are willing to risk life and limb.

      “I prefer dangerous freedom to peaceful slavery.” Thomas Jefferson

  • 500ozs

    Well summed up, what you omit is that 6/10 reasons are a direct result of the Rothschild Inc manipulations, very little is unplanned nowadays, they’re setting up something big, hold on tight…

  • Me Too

    “very little is unplanned nowadays, they’re setting up something big, hold on tight…”

    Isn’t the whole world in the process of being nationalized? Hence the ultimate
    “manipulation.” :(

  • Silver Shield

    Here is the email I got from the USGS to back up number 11.

    Question everything…

    Hello-

    I don’t believe that the USGS would ever use the term “extinct” in regards to the depletion of a resource. The USGS estimates current worldwide silver reserves are estimated to be 510,000 tons (http://minerals.er.usgs.gov/minerals/pubs/commodity/silver/mcs-2011-silve.pdf). The global demand for silver in 2009 was about 24,400 tons (http://www.silverinstitute.org/supply_demand.php). If nothing else were to change, the implication would be that we’d run out of silver in about 20 years. However, new deposits are still being discovered, and scarcity should lead to higher valuation, which should eventually lead to more exploration interest. Here’s a diagram showing silver’s relative abundance: http://www.science.org.au/nova/newscientist/ns_diagrams/027ns_005image2.jpg

    While cheap silver ore may become scarce, given the right price, it shouldn’t become extinct!

    Regards,

    Greg Durocher
    USGS Office of Communications & Publications
    Science Information Services – Alaska
    http://alaska.usgs.gov/science/esic/index.php

    Earth Science or Alaska Questions?
    Send inquiries to askusgs@usgs.gov

    02/07/2011 05:18 PM

    To: askusgs@usgs.gov
    cc: archive_ask@usgs.gov
    Subject: Silver to become extinct?

    Transaction=GSFVWY5F [08FEB2011 02:18:28UTC]

    Customer: Chris Duane

    Subject: Silver to become extinct?
    Primary response: askusgs@usgs.gov
    ==================================

    Adrian Douglas wrote a report that claimed the USGS said that silver was going to be the first element to become extinct and as soon as 2020. Was this written by the USGS and where is it?

  • Toxicosis

    Mining of any metal or mineral is dependent on cheap and available energy. This situation is ending. Silver nor gold may become extinct but the cost over-runs just to mine the stuff will become prohibitive in addition to gasoline or diesel shortages or even a break out of war. Silver and gold have always been money, and due to mining constraints from multiple converging catastrophes will once again retain status as the bartering/purchasing agent of choice. This is a global phenomenon and I would much rather have unprintable money as opposed to manipulateable currency any day. Autonomy in person and autonomy in money is the only way to achieve stability and freedom.

  • silverissexy

    Hello. I’m from Germany. This Article is great. The History Facts makes me more bullish than I was already before.

  • If ownership of gold and silver is made illegal, why would you choose to follow the edict? Rather, you should fight any government that would do attempt to take away by such fraud that which you own.

    Some of you sound like you would shepherd your families into the cattle cars on the way to the ovens (Germany, 1940’s) if that is what the government orders. Have you become so much of a sheeple you do exactly what you are told?

  • t

    It’s irrelevant how much it costs to mine silver. Demand trumps that in a second. I see the die hard gold bugs have been sticking to their tired and washed up talking points just like the neo-cons. Facts are facts, deal with em. Go spew that shit over at fofoa bitchspot.

  • Ben

    It seems all efforts to confiscate gold are in place waiting to be implemented, but they wont and don’t want to go after silver. Gold is mainstream, silver is underground for now. When all wealth is transferred from paper to metal very soon will this scripture be fulfilled at Ezekiel 7:19″They shall cast their silver in the streets, and their gold shall be as an impurity: their silver and their gold shall not be able to deliver them in the day of Jehovah’s wrath; they shall not satisfy their souls, neither fill their belly; for it hath been the stumbling-block of their iniquity.”

    http://www.henrymakow.com/satanist_insider-now_is_the_time.html
    “Soon the Reserve Banks will increase interest rates. Inflation will run rampant. This will lead to quick destruction of economies. Governments worldwide will increase taxation to pay debts that can’t physically be paid. This will be done because the sheeple want it and to prevent economic recovery. There will be no superannuation, pensions or social security: Just get over it. All this was set in place in September, 2010. Think not what you can do for your country. Think what your country will do to you! Gold will be taken from the sheeple; although Satan’s metal, silver will be safe.”

    http://www.moneyteachers.org/Comex+Silver+Disconnect.html
    “He pretty much validates what I have been telling you for quite a long time. Silver is not Satan’s metal. Gold is. This is why gold will be confiscated. Silver has too many other uses, besides as a precious metal, to be taken away from the masses.

    The economic collapse is unfolding right before your eyes. I warned of an August correction of the stock market that would cost investors up to 20% of their holdings. I was right. I am now warning you that the total stock market collapse is planned for the end of October/ early November.

    The bond market will also collapse from the rising interest rates that will grossly discount current debt. COMEX is the third domino that will fall. Its already a gross fraud, and so is its “Spot Price”. Look for a silver disconnect from COMEX in the upcoming months. “Spot Price” will be irrevelent and silver will sell for up $1500 per ounce by February of 2012.”

    Keep staking physical!!!!!!!!!!!!!

  • Vince

    Hey Silver Shield,

    I wanted to add something as well. A lot of our silver figures from 50+ years ago was when the world’s population was WAY less! I think about this often and it makes me conclude that purchasing power for metals should increased dramatically. Essentially there is even LESS metals for each person on this Earth. I know that this was a side note but I find it is often overlooked. Knowing silver inventory is astronommically down and knowing that population is astronomically up we can conclude that most who flood into metals will flood into silver because it is cheaper. I believe that because of this silver could easily catch up with gold and then surpass it. If you realized, say a year from now, that everything was a sham you probably would go buy silver. Imagine 2-4 billion people flocking to silver! KABOOM is an understatement. As silver catches up with gold the momentum should bring it pass gold and that is where I’d be looking to switch my silver for gold. I want gold in the long run even with the data. Thanks for the data and the silver passing gold quotes. Fascinating!

  • Gareth

    “The good news is that all assets revert to the mean, and the bad news is that all assets revert to the mean” Mike Maloney

    Since the historical ratio of silver to gold is 10:1 and the ratio ‘peaked’ at 100:1 due to better mining techniques a century ago along with US silver purchasing acts – we should expect an interesting new ratio between the precious metals.

    “Like a pendulum, the assets does not simply revert to the mean – it overshoots the mean dependent upon how much its been out of whack with the mean” Mike Maloney.

    Since the ratio went as low as 100:1, the mean is 10/16:1, and this ratio WILL overshoot, I think silver shield could even be conservative with his 1:1 ration. Silver could most certainly become more valuable than gold – I know that sounds ‘crazy’ but the wealth cycle – a mathematical, psychological, and historically based theory – implies that we really don’t know how valuable silver will become, but it’ll certainly surpass the historic mean.

  • Michael

    I don’t understand why people are referring to the 1919 example as a 1:1 silver/gold ratio. The coins had different weights. One ounce of silver never approached the price of one ounce of gold. Check out the historical charts at Kitco.

  • Dave

    So… do I sell my silver and gold ETF’s? It’s locked in a IRA, so I can’t get it for 8 more years, so what do I put it in?.

  • Horace

    @colin

    “there will never be 1 to 1 au-ag ratio. 10x more silver is mined every year. Sure we used up all the silver, but going forward, we mine silver 10-1 withouth even having dedicated silver mines, because it too cheap. Perhaps 5-1 would be fair”

    So you are saying that there will never come a day that mining ceases. How shortsighted. Maybe not in our lifetime, but it will happen.

  • Samuel

    Good article !
    Greetings from Israel !

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