This 4,000-Year-Old Financial Indicator Says That A Major Crisis Is Looming

Tyler Durden's picture




 

Submitted by Simon Black via SovereignMan.com,

Over 4,000 years ago during Sargon the Great’s reign of the Akkadian Empire, it took 8 units of silver to buy one unit of gold.

This was a time long before coins. It would be thousands of years before the Lydians in modern day Turkey would invent gold coins as a form of money.

Back in the Akkadian Empire, gold and silver were still used as a medium of exchange.

But the prices of goods and services were based on the weight of metal, and typically denominated in a unit called a ‘shekel’, about 8.33 grams.

For example, you could have bought 100 quarts of grain in ancient Mesopotamia for about 2 shekels of silver, a weight close to half an ounce in our modern units.

Both gold and silver were used in trade. And at the time the ‘exchange rate’ between the two metals was fixed at 8:1.

Throughout ancient times, the gold/silver ratio kept pretty close to that figure.

During the time of Hamurabbi in ancient Babylon, the ratio was roughly 6:1.

In ancient Egypt, it varied wildly, from 13:1 all the way to 2:1.

In Rome, around 12:1 (though Roman emperors routinely manipulated the ratio to suit their needs).

In the United States, the ratio between silver and gold was fixed at 15:1 in 1792. And throughout the 20th century it averaged about 50:1.

But given that gold is still traditionally seen as a safe haven, the ratio tends to rise dramatically in times of crisis, panic, and economic slowdown.

Just prior to World War II as Hitler rolled into Poland, the gold/silver ratio hit 98:1.

In January 1991 as the first Gulf War kicked off, the ratio once again reached 100:1, twice its normal level.

In nearly every single major recession and panic of the last century, there was a sharp rise in the gold/silver ratio.

The crash of 1987. The Dot-Com bust in the late 1990s. The 2008 financial crisis.

These panics invariably led to a gold/silver ratio in the 70s or higher.

In 2008, in fact, the gold/silver ratio surged from below 50 to a high of roughly 84 in just two months.

We’re seeing another major increase once again. Right now as I write this, the gold/silver ratio is 81.7, nearly as high as the peak of the 2008 financial crisis.

This isn’t normal.

In modern history, the gold/silver ratio has only been this high three other times, all periods of extreme turmoil—the 2008 crisis, Gulf War, and World War II.

This suggests that something is seriously wrong. Or at least that people perceive something is seriously wrong.

There are so many macroeconomic and financial indicators suggesting that a recession is looming, if not an all-out crisis.

In the US, manufacturing data show that the country is already in recession (more on this soon).

Default rates are rising; corporate defaults in the US are actually higher now than when Lehman Brothers went bankrupt back in 2008.

These defaults have put a ton of pressure on banks, whose stock prices are tanking worldwide as they scramble to reinforce their balance sheets against losses.

I just had a meeting with a commercial banker here in Sydney who told me that Australian regulators are forcing the bank to increase its already plentiful capital reserves by over 40% within the next several months.

This is an astonishing (and almost impossible) order.

The regulators wouldn’t be doing that if they weren’t getting ready for a major storm. So even the financial establishment is planning for the worst.

Good times never last forever, especially with governments and central banks engineering artificial prosperity by going into debt and printing money.

These tactics destroy a financial system. And the cracks are visibly expanding.

So while the gold/silver ratio isn’t any kind of smoking gun, it is an obvious symptom alongside many, many others.

Now, the ratio may certainly go even higher in the event of a major banking or financial crisis. We may see it touch 100 again.

But it is reasonable to expect that someday the gold/silver ratio will eventually fall to more ‘normal’ levels.

In other words, today you can trade 1 ounce of gold for 80 ounces of silver.

But perhaps, say, over the next two years the gold/silver ratio returns to a more historic norm of 55. (Remember, it was as low as 30 in 2011)

This means that in the future you’ll be able to trade the 80 ounces of silver you acquired today for 1.45 ounces of gold.

The final result is that, in gold terms, you earn a 45% “profit”. Essentially you end up with 45% more gold than you started with today.

So bottom line, if you’re a speculator in precious metals, now may be a good time to consider trading in some gold for silver.

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Tue, 03/08/2016 - 17:32 | 7288001 max2205
max2205's picture

you have take the opposite side to cash in

Tue, 03/08/2016 - 17:33 | 7288006 Dealer
Dealer's picture

Nah, everythings fine.  Lael Brainard has it all figured out.

Tue, 03/08/2016 - 17:39 | 7288035 knukles
knukles's picture

There's a fortune teller near the pier in SF goes by that name.  She's next to the guy in the big cardboard box where you put a $1 in the slot he snaps the window shade up blasts a couple notes on a trumpet in your face real loud and pulls the window shade down.  At first feels Kinda Trippy and then ya get pissed that you been robbed..... 

Tue, 03/08/2016 - 17:47 | 7288071 mtndds
mtndds's picture

They are just waiting for the dude that is currently in the white house to leave and then the shit show can start.

Tue, 03/08/2016 - 18:11 | 7288182 stacking12321
stacking12321's picture

get your chart of the gold silver ratio here:

http://goldprice.org/gold-silver-ratio.html

Tue, 03/08/2016 - 18:29 | 7288233 FL_Conservative
FL_Conservative's picture

By the time you pay the ~16-20% premium on silver eagles, you've lost most of the benefit of that arbitrage. 

Tue, 03/08/2016 - 18:45 | 7288357 JohninMK
JohninMK's picture

Or in Europe pay the VAT sales tax on silver of between 8-22%. Nothing on gold.

Tue, 03/08/2016 - 20:00 | 7288634 Mr. Universe
Mr. Universe's picture

Current premium with out trying very hard 16% to buy, 11% to sell, net round trip 5%. Not very hard to take advantage of that, but no need. Buy the time I'm ready to sell those puny figures won't matter.

Tue, 03/08/2016 - 17:49 | 7288075 Demdere
Demdere's picture

Tue, 03/08/2016 - 17:38 | 7288024 spartan117
spartan117's picture

Should be changed to "paper gold to paper silver ratio".  

Tue, 03/08/2016 - 17:39 | 7288027 Captain Chlamydia
Captain Chlamydia's picture

'people perceive something is seriously wrong'

 

No shit, Sherlock.... 

Wed, 03/09/2016 - 02:05 | 7289807 Jafo
Jafo's picture

Bob Hoye uses the ratio for the purpose of determining "stress" in the markets.  The ratio always blows out when stress is about to hit/is hitting the markets.  The ratio always declines when stability resumes.

Tue, 03/08/2016 - 17:39 | 7288031 buzzsaw99
buzzsaw99's picture

All King Solomon's drinking vessels were of gold, and all the vessels of the house of the forest of Lebanon were of pure gold; silver was not considered valuable in the days of Solomon.

2 Chronicles 9:20

Tue, 03/08/2016 - 18:25 | 7288259 Fester
Fester's picture

Judas Iscariot thought enough of it

Tue, 03/08/2016 - 18:51 | 7288374 buzzsaw99
buzzsaw99's picture

thought so little of it he threw it away before he killed himself.

Tue, 03/08/2016 - 19:00 | 7288420 riot-police
riot-police's picture

He was a traitor. A sell out. Trying to make a quick buck. Plus it was prophesied/predicted in the old testament that that was the set price. Zechariah 11:12-13

Tue, 03/08/2016 - 21:04 | 7288837 secretargentman
secretargentman's picture

Like any boom time monetary inflation, screws the people who saved before the boom. Think of all the poor old people whose life savings were silver during the time of Solomon. They would have been better off it their savings were in things they'd actually consume.

Tue, 03/08/2016 - 23:22 | 7289364 CORNFLOWER BLUE
CORNFLOWER BLUE's picture

But in the very next verse, it says he had a fleet of ships... carrying gold, SILVER...  If it was worthless, why was he importing so much of it?

Tue, 03/08/2016 - 17:40 | 7288043 Flying Wombat
Flying Wombat's picture

Demand For Physical Gold/Silver Will Break The System - Craig Hemke, TF Metals Report with Dave Kranzler and Rory Hall

http://thenewsdoctors.com/?p=625470

Tue, 03/08/2016 - 19:45 | 7288575 BigJim
BigJim's picture

Wow, really? Never heard THAT one before!

Nigga, pleeeeeze. I've been hearing this shit for 8 fucking years now.

Maybe it'll break... one day. But no man knoweth the hour, etc.

Tue, 03/08/2016 - 21:07 | 7288846 secretargentman
secretargentman's picture

I know what you mean, BJ... I look forward to the end of the fraudulent monetary system and the return to honest money, but sometimes I think I'm starting to lose faith. *sigh*

Wed, 03/09/2016 - 00:03 | 7289498 MrSteve
MrSteve's picture

Look to Weimar and Zimbabwe for the lessons in holding which precious metal. Whether inflation or deflation destroys a currency, it is GONE. A few rolls of gold coins will be the difference between survival and the other choice

Tue, 03/08/2016 - 17:48 | 7288072 SmedleyButlersGhost
SmedleyButlersGhost's picture

i was really hoping the graph guy would do the 4,000 year line graph. I realize it might have to go landscape mode. Sad.

Tue, 03/08/2016 - 17:50 | 7288082 css1971
css1971's picture

Hint: World War 3

Tue, 03/08/2016 - 17:51 | 7288085 falak pema
falak pema's picture

 MAo's China issued over 350 solemn warnings about the imminent demise of Imperialist Capitalism during the 60s and 70s...

Zh is not far behind when it comes to issuing solemn warnings that "this sucker is gonna go down"...

If only Trump were to get elected...that woud become a certainty...

But... a Trump can hide an mad elephant's Trunk on a mayhem run...Hatari !

Tue, 03/08/2016 - 18:19 | 7288216 stacking12321
stacking12321's picture

mao was wrong because he failed to understand simple concepts, like what capitalism is - there's no such thing as "imperialist capitalism" - imperialism and capitalism are opposites. capitalism involves free and voluntary exchange. imperialism involves violence / theft.

oh, and also mao was wrong because he was a communist and a mass-murderer.

Tue, 03/08/2016 - 18:32 | 7288291 falak pema
falak pema's picture

thats why tricky dicky played ping pong with him and thats why imperialist capitalism found a second home in his successor's China after that of neo-con America, the true home of imperialist capitalism.

We haven't seen the same movie!

Were you on the moon since 1969 with Neil ? Just returned from long voyage like Rip van...?

Wed, 03/09/2016 - 01:07 | 7289692 stacking12321
stacking12321's picture

what did you not understand about my previous post?

once again: there's no such thing as "imperialist capitalism".

imperialism is one thing, it is theft and violence, and all reasonable people are opposed to such criminal behavior.

capitalism is the opposite of imperialism, it is free and voluntary exchange.

tricky dicky was not a capitalist, neither are the neocons, they are both imperialists.

understand yet?

Wed, 03/09/2016 - 02:27 | 7289843 trader1
trader1's picture

the concept of MASH-UP seems to escape your comprehension capabilities...

Thu, 03/10/2016 - 04:19 | 7294640 stacking12321
stacking12321's picture

you should try reading and understanding the definition of capitalism.

then, once you have some sort of a clue, you will understand why an imperialist cannot be a capitalist.

Fri, 03/11/2016 - 02:47 | 7299307 trader1
trader1's picture

clearly you don't understand the difference between practical reality and theoretical definition

Tue, 03/08/2016 - 17:52 | 7288087 Goldbugger
Goldbugger's picture

Here's a Ratio in the coming years 10,000 GOLD and 300 SILVER.

30 -1

Tue, 03/08/2016 - 19:43 | 7288567 nopalito
nopalito's picture

Here's another ratio in the coming years: $55,000 gold and $2.75 silver.

20,000: 1

;)

Tue, 03/08/2016 - 19:47 | 7288583 BigJim
BigJim's picture

Jeez, why stop there? $555,000,000 gold and $0.55 silver.

See? I can play this game too.

Tue, 03/08/2016 - 17:54 | 7288093 Phat Stax
Phat Stax's picture

It's techncially the silver/gold ratio.

Tue, 03/08/2016 - 17:54 | 7288098 honestann
honestann's picture

Unless you realize the current disaster is likely to last until the extinction of the human species, in which case you'll die with more wealth if you hold mostly gold.  Oh well.

Tue, 03/08/2016 - 19:21 | 7288494 Implied Violins
Implied Violins's picture

Ah, but silver has anti-microbial properties. Another reason to own some as the end of the world looms.

Tue, 03/08/2016 - 20:25 | 7288718 espirit
espirit's picture

Will work as cast boolits to kill pesky microbes posing a werewolves.

Tue, 03/08/2016 - 18:00 | 7288118 lasvegaspersona
lasvegaspersona's picture

The problem with this story is that the role of silver has changed. It has been abandoned as a store of value. Central banks have given up on silver in favor of gold. No country has used gold as money since China quit in 1935 (yes it was still in US coins until the 60s).

If you are bugging out with 100,000 dollars in metal, gold will fit in your pocket. The silver will require a forklift.

start the hate in 3..2.. ....

Tue, 03/08/2016 - 18:11 | 7288178 deuce awesome
deuce awesome's picture

Fair enough but for me silver and gold are a hedge against financial turmoil. If it gets as bad as some people say it might it will be much easier to "trade" with small increments of silver (if all fiat is worthless toilet paper) then to try and get a good deal for a 100k nugget of gold. Not that I have a nugget of gold mind you. Maybe my "strategy" is based on the fact I can afford silver and not gold.....pre 1968 silver is still fairly easy to come by in Canuckastan. Told all my co workers I will buy any 60's coins. They can't figure out why I want them. Perfect.

Tue, 03/08/2016 - 20:39 | 7288763 Pareto
Pareto's picture

+100 And that stupidity will prevail.  Though I seen some pretty hefty large ass sums of money exchange hands this weekend - at a fucking flea market of all places.  I mean, fucking really big.  People are nervous.  And perhaps the only thing worse than a recession, is a nervous recession.  Who knows.

Tick Tock

 

Tue, 03/08/2016 - 18:15 | 7288201 Travis M Sawyer
Travis M Sawyer's picture

''Central banks have given up on silver in favor of gold''............who gives a fuck what the Central banks think or do.............

ps...nobody hates u

Tue, 03/08/2016 - 18:23 | 7288241 Pareto
Pareto's picture

+100 for "start the hate in 3....2....1"

Not at all man.  Good observation.

Tue, 03/08/2016 - 18:59 | 7288409 Pesky Labrador
Tue, 03/08/2016 - 17:59 | 7288121 LostWages
LostWages's picture

Does this mean silver will catch up to gold,  or gold will fall back to silver?

Tue, 03/08/2016 - 19:49 | 7288590 BigJim
BigJim's picture

Oh, silver will go up. Definitely! Don't you know the saying round here? "To da mooooon!"

Bet you can't refute that, fuckers!

Tue, 03/08/2016 - 18:02 | 7288134 Exalt
Exalt's picture

Interesting perspective on the relative prices.

Tue, 03/08/2016 - 18:03 | 7288139 kiwigal
kiwigal's picture

I would really like to know which commercial bank in Australia. ..are they specifically exposed to some big risks, mining, dairy???

Tue, 03/08/2016 - 18:06 | 7288154 deuce awesome
deuce awesome's picture

Love charts like that. Up until 1967 it looked like a low volume stawk that was moving on trades of 100. Then in 1967 complex algorithms kicked in and kablamoo pump up the volume! 

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