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The gold to silver ratio is a measurement of how many ounces of silver are equivalent in value to one ounce of gold.
More than an economic gauge, this ratio reflects centuries of human economics: from ancient coinage and empire to modern finance, industrial demand, and investor sentiment.
Below, we will discuss how this ratio evolved, why it matters, and what shifts tell us about changing economic realities.
Today’s gold to silver ratio depicts a historical imbalance between the two sister metals that have been used as currency for thousands of years.
As fiat currency and the emergence of central banking removed the practical application of using metals as currency, both gold and silver have experienced a historically unprecedented revaluation of the relationship of the two metals.
Ancient Rome was one of the first and most prominent historical societies to use a gold to silver ratio, an effective tool to gauge the scarcity and value of the two metals used in daily life.
As Rome conquered Europe and expanded westward, Rome would experience varying inflows of captured, earned or mined gold or silver that would in return have real market impacts on the exchange rate of gold to silver once available to members of the public.
Rome's gold to silver ratio fluctuated between 8-15 ounces of silver for an ounce of gold depending on the availability of either metal, its practical uses and the current market conditions.
While Rome used the silver "Denarius" as its primary monetary metal, gold coins were minted in times of war, as gold's higher value per ounce and lower weight to carry on hand made it an effective currency when in battle or moving across vast areas of land.
By 46 BCE, Julius Caesar had established a gold to silver ratio of 11.5:1, providing stability for market participants, an historical example of a common occurrence today, government intervention of free markets in an attempt to provide stability and liquidity.
Today, similar to ancient Rome, the Gold to Silver ratio depicts the relative demand of either metal derived from the applicational use, scarcity and current mining supply of gold and silver.
As Silver has become an industrial staple in electronics, batteries and “Green Energy” infrastructure, we can recognize the unprecedented shift in the ratio between the two metals as a direct implication of metal used for utility purposes and the other as a store of value.
History may not always repeat but it often rhymes.
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