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Gold:silver ratio path not necessarily bullish for silver investors

2 min read


Much is made by commentators of the historical gold:silver ratio (GSR) being around 16:1, while the current ratio is more like 55:1, with the implication being that silver will return to its historical ratio to gold.  If this were to happen overnight it would put the current silver price at a little over $100 an ounce – in the writer’s view this won’t happen, even in the long term, although there is definitely room for silver to appreciate more than gold in percentage terms in the days, months and years ahead, particularly if the gold price makes a rapid climb towards the $2,000 level which many do expect.

The reason we do not see the GSR returning to 16:1, is that silver is nowadays an industrial metal with an important investment element, while historically it was, like gold, a monetary metal.  But true silver-based coinage is long behind us, while the world’s Central Banks do not see silver as forming a part of their reserves.  True gold coinage, where the face value represents the metal content, does not exist either, but at least Central Banks continue to maintain gold as a key element in their holdings – although interestingly it is mainly the Western Central Banks which retain the high gold ratios in reserves, rather than the Middle Eastern and Asian ones where traditionally one might expect a greater propensity to hold gold as a monetary asset.  There does seem to be a move to rectify this in the East, which is gold price positive, but there is huge ground for these banks to make up to bring gold percentages in their holdings anywhere near European and American ratios – perhaps itself a positive factor for the yellow metal.

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