Guest Post: The Gold-Silver Ratio – Another Look

Tyler Durden's picture

Submitted by Andrey Dashkov of Casey Research

The Gold-Silver Ratio – Another Look

The gold-silver ratio (GSR) measures how many ounces of silver one can purchase for an ounce of gold, on a certain date.

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.

Interestingly, 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.

Here at Casey
Research, we stick to the dictum that the GSR “suggests a lot but proves
nothing.” Indeed, the GSR is determined by the price action of gold and
silver; the price action of gold and silver is not determined by the
GSR. Rather, each metal’s price is influenced by various fundamental
factors. What complicates any analysis of interactions between gold and
silver prices is that the two metals have different markets, each with
peculiar supply and demand structures.

Briefly reviewed, the gold
market is characterized by a large above-ground supply as the vast
majority of gold ever mined still exists in refined form, and annual
mine supply represents only a small fraction of that volume. Demand is
mostly for jewelry and investment. Gold is not widely used for
industrial purposes.

Silver demand, by contrast, is mainly for
industrial fabrication of things like electronics and batteries. The
metal is consumed during the process and removed from above-ground
stocks. The other major areas of demand are jewelry, investment,
photography, coins and household silver, in that order. Supply comes
mainly from mining and scrap recycling.

From this picture comes
one conclusion: over time, supply and demand for the two metals has been
fluctuating in response to industrial and technological advancements,
shifts in monetary systems and market turbulence. Today, as investment
and jewelry are the primary sources of gold demand and most of the
silver goes into industrial and related applications, it is no surprise
that the gold-silver ratio is different than the historical average of
17. The following chart shows how the ratio has fluctuated since 1968.

The GSR was extremely volatile over the past five decades and averaged
53.5 from 1968 to April 2011; during the last ten years (since April 2,
2001), the ratio averaged 61.8.

The ratio has been falling for
several months, however, as shown on the chart above.
Counterintuitively, however, rumors that a low GSR signals undervalued
silver started spreading. We say counterintuitively here since it is
unclear why a falling GSR should signal undervaluation after silver
gained over 80% within a year. Appeals to the mega-long-term GSR of 17
alone do not seem to provide enough basis to think that silver will
continue to soar indefinitely.

As of April 1, the GSR stands at
37.7. We, however, do not think that it is going to fall to 20 or 15
from this point: history shows that high volatility is the ratio’s
essence. After a plunge, there usually follows a rapid surge. That
happened in 1980 when gold reached its inflation-adjusted peak, and in
1987 and 1997. We don’t know how steep the current plunge in the ratio
will be, of course, but using history as a guide, we do not expect the
ratio to continue its decline for much longer.

Uncertainty about
the economic recovery in the Western world and the growth of developing
countries can result in slowing industrial output and hence falling
demand for silver that would hinder the price. These conditions also
create a favorable environment for gold driven by safe-haven demand. In
such circumstances, the ratio may climb.

History shows that the
GSR tends to rise significantly during a recession and create an interim
peak on the way. See the chart below.

believe that the measures taken by the current administration to battle
the recession are largely counterproductive, temporary, and will be
unable to prevent the onset of another major economic decline. It is
difficult to judge when the turmoil might start, but the odds of it
happening soon get higher as the levels of government debt increase and
the dollar is debased. When push comes to shove, the GSR can react
quickly and create a fluctuation of an unpredictable magnitude.

times of recession, as we discussed above, gold and silver behave in a
quite different manner. Have a look at the following charts.

that it is not quite statistically sound to plot a ratio against one of
its components, but for the purpose of illustration we find it quite

As you can see, in 1980 gold and silver both peaked on a
historically low GSR. This may imply that a low ratio can take place not
only when silver appreciates faster than gold (as it did in 2010 and so
far in 2011), but also when fundamental and speculative conditions
influence both metals. Of course, the 1980 silver peak happened while
the infamous Hunt brothers were massively accumulating the metal.

opinion attributes silver’s rise to the Hunts, but we are skeptical. It
cannot be determined to what degree the metal would have otherwise
risen absent the Hunts in the market. In any case, attempts to influence
markets are nothing new – today, major investment banks are accused of
manipulating the silver market by holding huge short positions that
cause artificial price suppression.

Returning to the charts and
how gold and silver behaved in the last recession, we can see that
silver moved counter to the GSR while gold moved in a mixed, sideways
pattern. Because of this, many see a lot of upside potential for silver,
but we should not forget that silver is the denominator in the ratio.
So absent strong fluctuations in gold – and gold was on an ascent since
the beginning of 2009 – the GSR would to some extent simply mirror
silver price movements.

The silver price was also influenced by
hopes that the global economy is reviving and that industrial demand is
going to last. In 2010, silver gained more than 80% while gold added
less than 30%. The difference resulted in the GSR falling throughout
2010. Will that performance be repeated? We cannot say. Speculators
should remember that the GSR is merely a ratio of two prices often
driven by different forces. It has limited, if any, predictive power.

that in mind, we will finish by juxtaposing the ratio against the
Toronto Venture Exchange (TSX-V) index, and it reveals an interesting
picture: it seems that the TSX-V has been negatively correlated with the
ratio for the last ten years. Again, statistically it’s arguable if a
ratio should be compared to an index, but looking at various
combinations of time series, and the stunning correlation, we couldn’t
help ourselves.

would be easy to conclude that there is a strong – and negative –
correlation between the index and the ratio. However, this correlation
does not provide any sort of guidance on whether the metals themselves
look expensive or not, or where mining stocks are headed. An interesting
image, that’s all it is.


gold-silver ratio attracts a lot of attention nowadays, but it is not a
reliable tool in an investor’s toolbox, and we don’t think it can
predict future price movements. But the reality is that nothing does.
Those who look at GSR charts, including ours above, should not forget to
analyze all the fundamentals behind the price movements of both gold
and silver. We advise you to be extremely cautious and not get caught in
the trap of believing that a single number or ratio, or a set of them,
can provide you with a crystal ball.

Identifying an opportunity
for future profit based on facts and a reasonable amount of risk is
another thing. This is what we do day in and day out – just not based on
the GSR.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
ursus.peracto's picture

Trade your paper in for BOTH!

XenoFrog's picture

Unplug Grandma and collect her gold fillings.

ursus.peracto's picture

Punch her in the face and take 'em. Grandma rode the Ponzi expecting the Grandkids to pay for it all. Leave her plugged in to watch it all crash and burn.

JW n FL's picture

Max Keiser guest Eric Sprott on commodities prices [gold,silver] (12May11)

ManOfBliss's picture

Chris is worth listening to. He's one of the few honest banking industry insiders.

lynnybee's picture

deleted, sic of my own griping.

Bent Nail's picture

I can commiserate with that . . . I so wanted to retort but decided it would have been wasted keystrokes.

gmrpeabody's picture


Their stupidity would have kept them from any comprehension anyway!

FlyPaper's picture

According to Amity Schlaes ( in her book the Forgotton Man, we come to find out that one Franklin D. Roosevelt knew from actuarial tables that Social Security would go bust, but he signed off on it because it was populist and served his short-term political ends.


"In Flemming v. Nestor, 363 U.S. 603 (1960), the U.S. Supreme Court set the record straight. Social Security is actually nothing more than an umbrella term for two schemes that are legally unrelated: a taxation scheme and a welfare scheme.

Workers and their families have no legal claim, grounded in the Fifth Amendment or elsewhere, on the FICA tax payments that they make into the U.S. Treasury, or that are made on their behalf."  [Charles Rounds].   Those funds are gone.

So what we have here is a massive payroll tax scam.  From the very beginning the politicians tried to cover this baloney with misleading ads and statements that continue to this day.  Fact is the government spent all the money, and there is no money in the SS "trust" fund.  That the "trust" fund is still discussed appears to be nothing more than a legacy of the ruse.  (And by the way, Clinton only had a budget surplus because they included the SS taxes.  Go to YouTube "I.O.U.S.A" for an excellent illustration of this point.

What Granny is, is a multi-generational victim of fraud, not the perpetrator.  In fact, you'd have to go to Granny's grandparents if you want to set blame for voting for FDR and the "New Deal."   We should rename ponzi schemes and hereafter call them "Roosevelt schemes."  

Anyone see any similarities between Social Security and Obamacare?  (Making political promises they can't fund?)

Ain't Granny's fault.  Lighten up.


JW n FL's picture

by FlyPaper
on Fri, 05/13/2011 - 21:48


According to Amity Schlaes ( in her book the Forgotton Man, we come to find out that one Franklin D. Roosevelt knew from actuarial tables that Social Security would go bust, but he signed off on it because it was populist and served his short-term political ends.


"In Flemming v. Nestor, 363 U.S. 603 (1960), the U.S. Supreme Court set the record straight. Social Security is actually nothing more than an umbrella term for two schemes that are legally unrelated: a taxation scheme and a welfare scheme.

Workers and their families have no legal claim, grounded in the Fifth Amendment or elsewhere, on the FICA tax payments that they make into the U.S. Treasury, or that are made on their behalf."  [Charles Rounds].   Those funds are gone.



Republicans! Stealing $2.5 surplus from Social Security - Robbing The Middle Class

Urban Redneck's picture

In all fairness it was a Democrat, and one of the authors of the Dumb-Fuck Wall Street Reform and Consumer Protection Act, who sought the intellectual validation of the Bernankus Stupidus for the decision to allocate 100% of the assets of the Social Security Trust Fund to US Government bonds.

Regardless of the wisdom, or lack thereof, in the push for private social security accounts, despite the fact that they are analagous to authorizing the use of SNAP cards in casinos where the slot machines are legally rigged in the House's favor, BOTH PARTIES freely feed at comrade Greenspan's trough. 

Government Pension Fund of Norway, with a couple percent of the world's public equity and significant other tangible assets is worth infinitely more than its US equivalent, if for no other reason than neither Ben Bernanke nor Øystein Olsen can conjure its paper out of thin air and thus directly dilute the Fund's value.

JW n FL's picture
by Urban Redneck
on Sat, 05/14/2011 - 10:16


In all fairness it was a Democrat,


the video doesnt have anything to do with republicans doing anything.. I jat added the word "republicans" to see what kind of response I would get.

the facts are below.

The Gang of 6 Raising the Retirement Age & Reducing Social Security Benefits  All for the Surplus $ Reducing Social Security Benefits All for YOUR! Surplus Money!


Sen. Ben Nelson [D(ick)-Neb.]

Gang of 6 Member Nelson, Ben (D-NE) $14 Million Dollar Lobby Whore  And! who owns him


Sen. Mary Landrieu [D(ick)-La.]

Gang of 6 Member Landrieu, Mary L (D-LA) $24 Million Dollar Lobby Whore And! who owns her




Sen. Ron Wyden [D(ick)-Ore.]

Gang of 6 Member Wyden, Ron (D-OR) $23 Million Dollar Lobby Whore And! who owns him 



Independent Dick Sen. Joe Lieberman, from Connectidick

Gang of 6 Member Lieberman, Joe (I-Conn) $49 Million Dollar Lobby Whore And! who owns him   


Sen. Olympia Snowe [R(eally big dick)-Me.]

Gang of 6 Member Snowe, Olympia J (R-ME) $10 Million Dollar Lobby Whore And! who owns her


Sen. Susan Collins [R(eally big dick)-Me.]

Gang of 6 Member Collins, Susan, M (R-ME) $14 Million Dollar Lobby Whore And! who owns her


Urban Redneck's picture

not quite the simplistic one sided party hack response...

JW- We craft and draft different punji sticks but I think your mind and heart are in a balanced place.  I have crap internet 90% of the time- so I avoid video as a matter of habit.  Until all the halls of power are painted the same color of shit I will remain an equal opportunity bigot. 

Sean7k's picture

In all fairness, get the damn government out of my pocket. Who, in their right mind, thinks the government can manage your wealth for you? If it is such a good idea, then why must we be coerced to contribute?

Are poor people any safer with the safety net? Maybe if you don't land in a spot with a gaping hole. The holes are propagating. The net is no longer being repaired.

Government is incapable of providing ANY service in an efficient manner, nor is it able to meet the needs of consumers- as it doesn't have to.

The problem is not which party is the villian- it is government that is the villian. The best source for consumer and business satisfaction is the elimination of government. We need to stop pandering to the Elite parasites that use this structure to drain our wealth, production and savings. We need to eliminate state sponsored welfare, warfare, taxation, monoplies and predatory systems of law that benefit a tiny minority of the population.

There is not one fully defensible argument in favor of government. There is no such thing as a public good that cannot be provided cheaper and better by the market. The reason is remarkably simple: the market MUST cater to the needs of its' customers in order to be successful. The State has no such requirement since it can depend on its' COERCIVE power to do what it pleases- including defending itself from the people it supposedly serves. 

There is no world where the systems established by the State would be as efficient or consumer friendly as a free market. The excuse of a search for the ideal leadership is the cruelest myth ever perpetrated on humanity. The excuse that mankind is flawed and incapable of perfection is true, but disingenious. If true, you do not continue on, you find a mechanism that negates its' effects. The free market does this.

The retort that there would be problems in a free market as well, is true, but disingenious as well. The problems would be less severe and resolved in a manner lacking the devastating violence of the State. 



Raymond K Hessel's picture

JW in FL = douche


You should watch South Park more often.  You would've caught the Ocean's 11 - election episode, where they show it didn't matter which side won.  Both Dems and GOPs teamed up to rip the American people off. 

Then you wouldn't look like a douche with your post.  I junk you.

Raymond K Hessel's picture

Now that's how you fucking post!! 



Things that go bump's picture

Ha, ha, ha, grandma's got dentures and spent your inheritance on a face lift and Julio, the cabana boy.  

Hugh G Rection's picture

these historical ratios roughly reflect geologists’ estimates that silver is 17 times more abundant than gold in the earth’s crust.



This doesn't account for the first time in history there is less above ground silver than gold.  Or that 90% of silver is used up, while gold is stored in vaults or reused.  Or the fact that there is 100 or 1,000 times more paper than the underlying physical metal.


The real ratio should be closer to 5-1, or parity for fucks sake.


Keep manipulating it down shitheads, I will keep hoarding.

XenoFrog's picture

On a lark I changed the current silver spot to $500 in my excel book.




If only...

Abitdodgie's picture

Government accounting ideas I love it , don't forget to put any credit card debt down as an asset. If they want you to pay it back because it is maxed out , tell them to up the limit so you can pay them back ,after all it works for America

Stormdancer's picture

You were at least a hundred dollars low.  Maybe three :)

cossack55's picture

roger that. You beat me by 1 minute. Its ok, same msg.

JW n FL's picture


shadow stats 1979 $50 ='s $538.82


for my vodka drinking friend!

Hugh G Rection's picture



I'll drink to that!

tarsubil's picture

What demand would make silver rise so high? It's use as a currency in a world without a good one overwhemling all other considerations making its worth directly related to an unstable availability above ground. If it is that close to gold, gold is superior since it is more stable and the advantage silver has of being used for day to day money instead of savings deposits goes away so I'd guess gold would win out.

Jalaluddin's picture

What would make fiat fall so low?

Clay Hill's picture

1)  common sense

2)  open eyes / ears

3)  three simultaneously firing neural receptors

4)  all of the above

Chappaquiddick's picture

Bravo Hugh - they can junk posts like this but you can't hide the facts.

Just as an aside to the above article, I think that the GSR is a very good tool for gold and silver investors.  I have a target ratio above which I buy silver and convert gold to silver and below which I buy silver and convert gold to silver.  In short my strategy is to buy silver and convert gold (in fact all my assets) to silver - which has worked very, very well to date.

The GSR will hit parity in this decade at which point I will convert some of my silver to gold (just for the novelty).

Best wishes, Chappy

Hugh G Rection's picture

Thanks Chappy.

It never bothers me when people touch my junk.

The bankster trolls can try to trash common sense, but they wont close my eyes to the fundamentals. Im going balls deep on Ag and using 0 leverage. Margins be dammed. Everytime they shake the tree and put it on sale, I convert more paper into silver and bury it. Fuck the banksters and the morgue. We'll come out on top.

cossack55's picture

We need a term to use for we "buriers". Very common in Europe for centuries.

Deep Silverbug

I'm 6' in silver

Have shovel, will bury

Deep investors

They all suck

Mec-sick-o's picture

And your proposed term is?

s2man's picture

I don't usually post.  But someone needs to say, good one, Brer

SamuelMaverick's picture

Don't forget the dow to gold ratio.  It hit 1/1 in 1980 or 81.  

ursus.peracto's picture

They keep shuffling DOW components so it shouldn't be used as a benchmark.

Weisbrot's picture

so many disasters man made & others

so much turmoil all over the globe

conspiracy or happenstance it almost doesnt matter

I am convinced that the powers that be, believe something much worse will happen

various theories and reasons abound, based on strings or piles of truth

things will never be what they were

may what ever it is or the series of events that lead to it

be quick, be concise, and have the best possible outcome for the worse of all possible situations


until then enjoy all the side shows

and remember that everything is temporary



NOTW777's picture

"It is difficult to judge when the turmoil might start"

after obama is out of office - might coincide with another terrorist attack ala clinton-bush cycle.

obama is doing little to develop new intel

cossack55's picture

Actually a lot of intel is being developed, and it all points to the US gubment as the largest terrorist organization on the planet.

FIAT_FixItAgainTony's picture

agreed cossack, spot on.  the terrorists have been identified.  turn off the tee vee america, "we have a duty to ourselves and each other to hang these crooks for fraud and treason."

Git 'er dun!

Creed's picture

This may come as a shock to you conspiracy buffs, but there really are evil people out there and they do want to make hamburger out of your little brother, little sister, mother or wife.

No, it's not a recent development & Americans don't deserve to be blown to bits because of our support for Israel.

Real men & women fight them every day, and some of those people work for the CIA or NSA.

Pussies sit around speaking the vernacular of the progressive movement, i.e., AMERIKA = BAD.

It sure is easy to fingerpoint while real men do the heavy lifting.

snowball777's picture

We (and the Brits) have a long history of backing whomever we can bribe or install (after a velvety revolution, of course) and have supported some very nasty shitbags in the pursuit of the protection of "our" (corporate) interests.

Am I to afford the people doing contract wetwork for Xe/BlackWater with the same measure of respect?

Do I think America can really afford all that "heavy lifting"?

You don't have to be unpatriotic to be suspect of the military industrial complex and "cost centers" run amok...or missing palettes of cash, for that matter. Maybe I want to be so introspective as to put Cheney's portfolio at risk; my country can take it.


Oh regional Indian's picture

Spot on snowball.

in fact, the US and it's current citizens need to look no farther back than a well-documented and well-hidden history of genocide against the Native Americans.

Even to this day. The BIA (Indian Affairs) has a long and deep history of corruption, broken promises, reneged deals...

And of course the slaughter. Human, Bison, Deer.... now cows, pigs and Chickens by the billions....

The US reeks of death. If people paid attention even now, things could change. Visit a reservation...not the Casino in it.

Eye Popping...


trav7777's picture

keep bringing up 100 year old shit.  Let's look into India's history and see what we find there

DaveyJones's picture

What has that got to do with our country falling apart? Propaganda does not need to be false to be effective as long as it confuses the issues. You don't need to invoke the terrorist boogeyman to inspire truly disgusting human behavior. Try your local criminal courthouse where you can bathe in child rape and other lovely gestures or better yet try your local legislative house where you can witness your children and their future being raped in ways you never thought imaginable. And the last time I checked corruption, by definition is a "conspiracy." So call me a pussy and a progressive for calling out my government and fighting for my children. I'll let you get back to your weights.                                       

kumquatsunite's picture

A good place to start "fighting for my children" would be the local schools. While whine whine whining regarding they "must have more money", the school system/teachers are drug dealers of stupidity, clicking along to retirement where they escape into teacher nirvana of retirement after twenty years of causing irreversible harm to society and your children. Why? Because your too stupid to demand a showing of accomplishment for what you've already been trammeled, hijacked, and fleeced for, your property taxes. Now let us take a hypothetical example...Seattle school district, for example (but yours will be very similar).. the budget is around 550 million for 44,000 students which comes out to 12,500 (rounding) per student. The "average" class size is 26 and if we apply correct calculations we find that, voila! this works out to $325,000 paid Per Teacher for a class of 26 students. Now at $325,000 doesn't a brilliantly educated student seem reasonable to expect? Rather than our current de facto fifty percent drop out rate...they disguise this with "move aways"...combined with a 25% idiocracy (complete numnuts!) brain-dead students being graduated; students who have been passed along by teacher after teacher even though they know the child/ren can't read, write, or do rithmetic. Further, of the money in a school district's budget, the average is that 13% is spent on "bilingual" education (Are you insane? Educating foreigners rather than your own? Since when did this country become feeding trough for foreigners) and 12% is spent on "disabled". Sure everyone wants to take care of the truly "disabled" student but given that most of the "disabled" students are "disabled" by virtue of being born to parents who are welfarians for life, who don't marry in order to access the giant welfare complex, meaning that at birth they are plopped in front of the television where they share (without a vote) their parents love of the Saw movies, Jackass (Jackass is to the Idiocracy...see the movie Idiocracy if that reference is Tolstoy is to the intelligensia) and the 300-word vocabulary of the welfarians, of which four-letter words comprise 299 words of the 300 words. (Ever been in Walmart? Listen to the language these people use with their children? Absolutely astounding in the level of vulgarity. Should be cause for child abuse charges)....surely if you are receiving taxpayer money, taxpayers have the right not to subsidize the continued reproduction of further guttersnipes via demanded birth control? How many "children"...using the phrase loosely for the genetic reproduction of human facsimilies; "human" arising only from the proper socialization of the genetic mass/fusing of egg and sperm by loving, caring, devoted parents. The point here is that this means that the reality is that only 75% of a school "budget" is actually spent on your child. And that 75% is irrelevant. Your children are being assaulted by an educational system that sees them as the conduit of money to the teachers' unions and their benefits. Your children are in an environment when in school that is completely hostile to them (Read a study several years ago that found children absolutely feel that the schools are a hostile environment.)While Oprah and others continues to celebrate teachers, based on the frighteningly rare competent teacher, and her own self-annunciation to Saint Oprah "who knows all", most students are simply cogs in the wheel, no one cares about them, and those vaunted endless tests they are administering, only serve to prove that the teacher stands in the classroom routely reciting without regard for whether, on a daily basis, the child has actually Learned the lesson. One of my friends home schools and we speak at length regarding the constant immediate feedback that home schooling provides, the feedback necessary as with each (call it: block) block of learning that is not absorbed, the next block becomes less absorbed, or even not at all. This is the greatest scandal in history; the abuse of our children through the scholastic system. They know they are being cheated out of their education, but the system has made them too dumb to be able to explain it to you. God help us all for what is being done to them. Oh, but they do know all variations of sex (GLT) and can get their hands on any drug at any time. Sorry this is is a holocaust for our children.