Friday, November 19, 2010

Abigail Doolittle on the Gold-Silver Ratio

Abigail Doolittle founder of Peak Theories Research is out with a comment on the Gold-Silver ratio, that includes some historic background on the ratio:

•323 B.C. – The ratio stood at 12.5 upon the death of Alexander the Great.

•Roman Empire – The ratio was set at 12.

•12th to 17th Century – The ratio was around 12.

•End of 19th Century – The nearly universal, fixed ratio of 15 came to a close with the end of the bi-metallism era and England’s attempt to demonetize silver and conceivably because the country had little of the precious metal.

•1980 – At the time of the last great surge in gold and silver, the ratio stood at 17.

•1991 – When silver hit its lows, the ratio peaked at 100.

•2003 - 2007 – This part of the bull market in silver caused the ratio to drop to 45 from 80.

•2008 – The ratio rose back to 80 on the Great Recession.
The history, if nothing else, proves the Austrian economists' methodological observation that there are no constants in the realm of economics.

A ratio that has been at 12, 17, 100, 45 and 80, certainly might clue some in that there is no fixed correlation between the price of gold and the price of silver. I'm bullish on both gold and silver, and one may climb in price quicker than the other, but it won't be because of any supposed ratio that they are both moving towards.

3 comments:

  1. The historical rationale for the ratio was how much metal was actually in the ground. Meaning, for every ounce of gold there was 15-17 ounces of silver.

    Obviously, that may not be the greatest way to measure the metals' worth, but it worked reasonably well for hundreds of years. The real question is . . . is it possible for today's market in a modern civilization to ACCEPT or BELIEVE this ratio to value the metals at?

    If the entire civilized world can believe a stack of paper is worth more than a human life, then how much more so a lump of metal . . .

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  2. The real question is . . . is it possible for today's market in a modern civilization to ACCEPT or BELIEVE this ratio to value the metals at?

    All that matters is the subjective value individuals (collectively, the market) ascribes to the metals, i.e. how many lbs of [insert anything] will 1 oz of silver or 1 oz of gold buy

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  3. This chick is totally hot!

    ReplyDelete