Plot the gold/silver ratio over 200 years

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This chart traces 200 years of the gold/silver ratio, charting the crucial historical events that shaped its peaks and valleys.

What is the gold/silver ratio?

The gold/silver ratio represents the amount of ounces of silver equivalent to a single ounce of gold, allowing us to see if one of the two precious metals is particularly under or overvalued.

Currently, the ratio is around 80 ounces of silver equivalent to one ounce of gold. This is after the ratio hit new highs of 123.3 during the COVID-19 pandemic.

While gold is mainly consulted as a hedge against inflation and recession, silver is also a metal and an industrial asset. The relationship between the two can reveal whether the demand for industrial metals is on the rise or whether an economic slowdown or recession is looming.

The history of the gold/silver ratio

Long before the gold/silver ratio was allowed to float freely, the ratio between these two metals was set by empires and governments to control the value of their currency and coinage.

The first recorded example of the gold/silver ratio dates back to 3200 BCE, when Menes, the first king of ancient Egypt, established a ratio of 2.5:1. Since then, the ratio has only seen the value of gold rise as empires and governments have become familiar with the scarcity and difficulty of producing the two metals.

The ancient beginnings of gold and silver

Ancient Rome was one of the first ancient civilizations to establish a gold/silver ratio, starting at 8:1 in 210 BCE. Over the decades, varying inflows of gold and silver from Rome’s conquests caused the ratio to fluctuate between 8 and 12 ounces of silver for every ounce of gold.

In 46 BCE, Julius Caesar had established a standard gold/silver ratio of 11.5:1, shortly before it increased to 11.75:1 under Emperor Augustus.

Over the centuries, ratios around the world have fluctuated between 6 and 12 ounces of silver for every ounce of gold, with many empires and nations in the Middle East and Asia often valuing silver more highly than their counterparts. Westerners, thus having a lower ratio.

The rise of the fixed ratio

In the 18th century, the gold/silver ratio was redefined by the American government. Coinage Act of 1792 which sets the ratio to 15:1. This act was the basis of American coinage, defining the value of coins by their metallic compositions and weights.

Around the same time, France had adopted a ratio of 15.5:1, however, none of these fixed ratios lasted long. The growth of the industrial revolution and the volatility of the two world wars led to massive fluctuations in currencies, gold and silver. By the 20th century, the ratio had already reached highs of around 40:1, with the onset of World War II pushing the ratio further to a peak of nearly 100:1.

Recently in 2020, the ratio hit new highs of over 123:1 as pandemic fears saw investors pile into gold as a safe-haven asset. While the gold/silver ratio has since fallen to around 80:1, runaway inflation and a potential recession have put gold in the spotlight again, likely bringing additional volatility to this historical ratio.

(This article first appeared in the Capitalist visual elements)

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