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Post 14 Jan 2013, 8:10 pm

silvergold.png
I had to shrink this because of the file limitations
For most of known history, silver and gold have enjoyed a relatively static price relationship (roughly 14-18:1). Today the ratio is 55:1. However, that's not nearly the biggest gap between the two.

Sometime around 1935, the ratio surpassed 100:1, and it was up there somewhere around 2000. Take a look at this graph.

Now you'll notice that the price ratio was quite static up until the 1870s. While the more drastic changes didn't occur until the 1890s (Hello, WJB!), and the ratio did go back down to "historical" levels twice since, the 1870s seem to be where silver reached the point of no return.

Now I would suppose that the primary factor of the change was the demonitization of silver across many western nations in the 1870s. But what other factors are involved? Is there a "true" ratio for modern society? By true ratio, I would expect a modest fluctuation.

Here are some facts. Silver is about 19 times more abundant than gold. That, to me, makes a 19:1 ratio a simple "low". Scarcity always affects price. However, in terms of utility, both have ups and downs. Silver seems to have more overall usefulness, whereas gold beats silver in the areas they are both useful because silver oxidizes more quickly.

One use of silver that I found to be interesting: space electronics. because the downside of silver is oxidation, space becomes a natural place for silver.

Does the expansion of space exploration drive up silver prices (hence, lowering the ratio)?

Looking at the graph above, there has been some major price volatility. Some of it has to do with price controls (e.g. Nixon's gold price fixing). But what other factors are there?

Overall, I wonder if we can come to a consensus on this.

Thoughts?
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Post 16 Jan 2013, 11:48 am

The price of these metals is based on something other than economics. Typically, you value your assets based upon on how much you can make off of them. This is true of land, stocks, and even much you pay people.

That's not true of these metals, which while relatively scarce, don't have many major uses that justify their price. Their price is what I call faith-based, disconnected from standard economics. They cost as much as they do because you and others like you believe that they are worth that much. Will you believe that next year? In 10 years? Good luck trying to find a formula for that!
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Post 22 Jan 2013, 11:54 am

Then why was the price static for so long?

Gold and Silver have many uses, as I highlighted earlier in the post. And, yes, people do buy and sell these materials for the same profit reasons as any other commodity.

Historically speaking, they have worked as a store of value--which is why they were used monetarily. I'm not exactly sure what you mean by faith-based. Faith in what? Isn't any purchase "faith" based to an extent?

I'm not trying to find a formula, but let's face it. They have been and will continue to be an investment.

The reason I brought this up is because lots of people have been talking about "silver" being the next big thing, since it's lagged behind gold's most recent boom.
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Post 25 Jan 2013, 5:50 am

Maybe the issue is that gold is overpriced in relation to silver.