Gold Silver Ratio from 1900 to 2010The gold silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date.Reference to the ratio has a long history. One of the first mentions was that upon the death of Alexander the Great, the ratio was 12.5 to 1. During the Roman Empire, the ratio was set at 12. By the late 19th century, the ratio had risen to 15. These historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust. This gives many investors a reason to believe that 17 is the natural balance between these elements, and that eventually the GSR will return to it. Monitoring the GSR is quite popular among gold and silver investors. It seems that whenever it makes a big move, many start drawing conclusions about the direction of the prices of its underlying metals.
The gold to silver ratio points to silver as being undervalued when one considers its historic performance, but particularly during commodities/precious metal bull markets. Regardless of other factors, (including the alleged manipulation of silver) silver’s industrial uses and its current price relative to gold indicate silver could potentially offer more robust returns for the duration of the bull market in commodities. This gold to silver ratio was recognized by civilizations as currency systems were developed over time. Thus, in 1792 the newly formed U.S. Congress passed the First Coinage Act. The Act officially established the Dollar as our currency, defining one Dollar as a weight of pure silver, 371.35 grains to be exact. A Quarter Eagle ($2.50), was defined as 61.875 grains of gold. The Act legally set the gold silver ratio at 15.
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