Could Silver Be Worth More Than Gold?

Could Silver Be Worth More Than Gold? You may have heard about the increasing uses for silver in industrial applications. This is often used to argue that the price of silver will rise significantly and could equal or even overtake gold. Could this really happen?

A reader posed just such a question:

“I’ve heard a lot about how useful silver is and the many different purposes it is used for, whereas gold is mainly just precious. Will the usefulness of silver ever cause it to become a more desirable asset (ie: more valuable) than gold?”

This post covers this topic in depth including:

  • The gold to silver ratio over 3 centuries
  • Some historical evidence of silver being worth more than gold
  • Silver industrial demand versus investment demand
  • Could Silver Be Worth More Than Gold Due to:
    • Peak Silver?
    • Increasing Institutional Investment Demand?
    • Increasing Photovoltaic Demand?

 

Silver Price Compared to the Gold Price: The Gold to Silver Ratio

Today silver (in New Zealand dollars) is priced at $21.60. While gold is $1835. So it takes a little under 85 ounces of silver to buy an ounce of gold (1835 divided by 21.60). This is known as the gold to silver ratio.

Read more about the gold to silver ratio and how to use it to determine better times to buy gold or silver here: What is the Gold/Silver Ratio? >>

 

The Long Term Historical Gold to Silver Ratio

This 100 year chart of the gold to silver ratio shows it has moved below 20 three times in the past century. The lowest point was reached in January 1980 when the ratio dropped to below 15 (more on that later).

gold-to-silver-ratio-2017-09-05-macrotrends

Gold to Silver Ratio – 100 Year Historical Chart

 

Has There Ever Been a Time When Silver Was Worth More Than Gold?

Or at any time has silver ever been worth the same as gold? Put another way has the gold to silver ratio ever even reached 1:1?

The site measuringworth.com has a dataset all the way back to 1687 for the gold silver ratio.

The silver to gold ratio averaged around 15 all the way up until the late 1800’s when silver was demonetised.

But through much of this time there was a bimetallic standard where the government set the silver to gold ratio between the two metals. So this could be why the ratio held around the 15 level for long periods.

The average for the ratio was then much higher during the past century. At a glance you could say it’s been closer to around 40.

This data never shows the gold to silver ratio reaching 1. However it is the average daily ratio over the course of each year. So this dataset would not show any spikes down that may have occurred during the course of a given year.

Prefer a visual summary? Here’s a short video with a visual representation of how the Gold to Silver Ratio has tracked from 1883 to modern day.

Silver to Gold Ratio 1883 to Present

 

Have You Considered Storing Some Precious Metals Offshore?

New Zealand is known as one of the top 5 best places to store gold offshore (source: Nomad Capitalist).

Discover 12 other reasons you should store some gold and silver bullion in New Zealand: Offshore Gold and Silver Bullion Storage in New Zealand)

 

Could Silver be Worth More Than Gold? On these Occasions it Might Have Been…

A bit of hunting around has brought to light some historical instances where silver appears to have been worth the same as gold. The Don’t Tread On Me blog has collated a number of historical quotes that seem to point to occasions when silver has been worth more than gold:

The 1:1 Gold to Silver Ratio has happened before.

“For the first time in history, silver coin, of the leading nations of Europe sold at a higher price than gold coin. This of course does not mean that silver is more valuable than gold, merely a silver dollar or shilling is worth more than a gold dollar or shilling.”
Silver the World Sensation in 1919-1920
January 24th, 1920

“Are the New York financiers living up to their claims of honesty that they made so vociferously in 1896, or are they paying their debts in a cheap gold dollar?’.’ asked Mr. Bryan the other day when the bullion value of a silver dollar had soared beyond the bullion value of a gold dollar.”
The commoner. (Lincoln, Neb.) December 01, 1919

“With the bullion in a silver dollar worth five cents more than bullion in a gold dollar the cross of gold does not look so yellow and the crown not so thorny as it was”
Source

Silver coinage throughout the world is worth more at bullion value than the par value of gold coin. For instance, 5,900 British shilling coins contain just 1,000 Troy ounces pure silver, but are worth 6,929 shillings at the market price of 77 pence for British silver bullion. Over 1,000 shillings is the premium on the market value of 1,000 ounces of pure silver over the coin value in British coinage. The 5,900 shilling coins were worth 346 in the silver bullion market, and only 295 at par or gold value of 295 in gold sovereigns or in gold bullion;…
Mohave County miner and our mineral wealth. (Kingman, Ariz.) January 24, 1920, Source

William Jennings Bryan:
“I’m too much perplexed by the news of the day. The morning papers announce that the bullion In a silver dollar Is now worth five cents more than the bullion in a gold dollar. The shock upsets me. I am not able to speak with composure. My thoughts insist on running back to 1896, when the self appointed champions of an honest dollar vociferously declared that their consciences would not allow them to pay their debts in any but the best money. I am patiently waiting for the afternoon papers to learn whether these men are paying their debts today In silver dollars at a premium or whether they are using the cheap gold dollar for liquidation purposes. If I find that they are using gold coin, now five cents below the silver equivalent, I shall suggest the appointment of a congressional committee on conscience to ascertain why these men who used to profess so highest standard of patriotism and honor, have fallen from grace….”
Source
The commoner. (Lincoln, Neb.)December 01, 1919,

“For a silver mine today is more valuable than a gold mine” (Source.)
The State of the Union by Archer Wall Douglas
The Independent April/May/June 1920

(Special thanks to row5_seat47  on Kitco for the info.)

Source.

 

How Could Silver Be Worth More Than Gold?

Silver would have to rise in value 85 times from today’s price in order to be worth more than gold. So what could cause silver to be worth more than gold?

The post from Don’t Tread on Me that we referenced above is titled “The Case for the 1:1 Gold to Silver Ratio”.

Gold Silver ratio and why it will reach 1:1

Here are their 11 reasons why the gold silver ratio will fall to 1:1 in the coming years:

1. The historical monetary ratio of gold to silver is 1:16 to 1:12, which means that silver should rise 200%+ faster than gold.

2. The natural mining ratio coming out of the Earth of gold to silver is 1:10, which means that silver should rise 350% faster than gold.

3. The ratio of gold to silver at the CRIMEX is 1:9.

4. If we understand that all of the gold ever mined has been treasured by humanity as a truly precious metal, while silver has been used and abused as an industrial metal, this Gold to Silver ratio must be lower than either of the above ratios.

5. All of the major stockpiles of silver that all of humanity ever mined are gone.

6. Silver is second only to oil for the amount of uses of any commodity.

7. Silver has started to catch investment demand, but so far most of the money has gone into paper derivatives of silver like SLV, futures or mining stocks.

8. Silver has naturally been used as money more times and more often than gold.

9. There is already a 1:1 ratio of dollars invested in gold and silver in Sprott Asset Management, GoldMoney and the US Mint.

10. The 1:1 Gold to Silver Ratio has happened before.

11. Finally, the USGS said that silver has the very real possibility of becoming the first element on the periodic table to become extinct by 2020.

Source.

 

If you prefer to watch rather than read then here’s a video from FutureMoneyTrends.com that also argues Why Silver Will be Worth More Than Gold

Silver Shortage This Decade, Silver Will Be Worth More Than Gold -FutureMoneyTrends.com

 

Could Silver Be Worth More Than Gold Due to Industrial Demand?

As our reader alluded to in her question, silver has industrial uses as well as monetary value. Gold also has some industrial applications, but comparatively to silver these are very minimal. Gold is chiefly bought as a store of value, or what is known as investment demand.

You’ve likely read plenty about how the industrial demand for silver is increasing. Is this the case?

Well it’s pretty hard to know. We can only look at the numbers from the Silver Institute. Many in the precious metals community would take these numbers with a grain of salt or even pour scorn upon them. But we don’t have much else to go on.

So what do they say?

Total industrial demand for silver (called Industrial Fabrication in the table below) was up last year, having fallen for the previous 3 years, although not by much. You can look down below this figure to see how this industrial usage is broken up. The much hyped photovoltaic usage (solar panels) had been fairly flat but over the past 2 years has jumped sharply higher.

Coin and Bar demand has almost halved over the past 2 years since hitting a record high in 2015.

Physical demand was down a bit further again last year.

On top of this ETP inventory build (Exchange Traded Products) was also down quite sharply this year after the previous years increase.

World_Silver_Supply_and_Demand Table

Source: The Silver Institute

However the main takeaway from this table is that there remains a net deficit of supply compared to demand in silver. Although last year the deficit was the smallest it had been in 10 years.

 

Could Silver Be Worth More Than Gold Due to Peak Silver?

It would appear the demand for silver is here to stay. Even with much lower investment demand last year, there is still a deficit. But will the supply side be able to keep up with the demand?

Scrap supply seems to have peaked, having fallen every year for 6 years. It won’t be easy to increase the mine supply of silver though to make up for this. Silver is chiefly mined as a byproduct of other metals like gold and copper. The lower prices of these metals have meant investment in exploration and development of new mines has dropped in recent years. So mine supply of silver won’t be increasing any time soon.

You can read more on the subject of “peak silver supply” here: Has Peak Silver Arrived? >>

 

Could Silver Be Worth More Than Gold Due to Increasing Institutional Investment Demand?

2016 also saw a huge increase from the previous 3 years in Exchange Traded Fund demand for silver (see ETP Inventory Build and Exchange Inventory Build in the Table 1). Although as noted already, last year this demand fell.

And from what we’ve seen this Exchange Traded Product demand seems to affect the silver price more than coin and bar demand or industrial demand.

You can see that the large increases in 2008, 2009 and 2010 coincide with sharp gains in the silver price. Conversely 2011, 2013, 2014 and 2015 and 2017 were years with lower ETP demand also were years when the price fell or was flat.

 

Could Silver Be Worth More Than Gold Due to Increasing Photovoltaic Demand?

In terms of industrial demand the last few years don’t really show a massive increase in industrial demand in silver recently.

But perhaps the 59% jump in photovoltaic demand over the past 2 years could be the start of a longer term rise in demand?

With the likes of Elon Musk now producing solar panels that actually replace roofing tiles, and potentially for the same or maybe even less cost than a normal tile, the demand for these panels is likely to grow significantly in the future.

Perhaps this could be enough to really increase the price of silver dramatically?

 

Could War Increase the Demand for Silver and Cause Silver to be Worth More Than Gold?

With the Drums of war beating more loudly at the moment it could be war that increases the use of and therefore the demand for silver.

An article called Silver Cycles and War Cycles showed how major wars of the past 100 years did appear to boost silver prices significantly.

Read more on: Silver Cycles and War Cycles >>

However silver was not worth more than gold any time in the past century. So we have our doubts as to whether even a major war will cause silver to be worth more than gold in the future either.

 

What Do We think? What Could Cause Silver to be Worth More Than Gold?

All the reasons mentioned above are good reasons as to why silver will likely increase in value much more relative to gold in the coming years.

But we think monetary demand for silver will likely be the biggest factor in increasing the silver price in the long run.

If we look back to the last precious metals bull market in the 1970’s, it was monetary or investment demand that drove gold and silver higher.

The argument is made that it was the Hunt brothers manipulating the price by “cornering the market” in silver that pushed silver to its record price of $49 per ounce in 1970.

However it seems to us that the Hunt Brothers were really just worried about the state of the USA and inflation arriving and were simply buying more and more silver as a hedge against this.

Read more: The Real Hunt Brothers Silver Story >>

The result was that in 1980 the gold to silver ratio dropped to its lowest point in the past century – to just below 15 (albeit only briefly for one day).

We think that it will be investment or monetary demand that sends silver much higher this time around too.

 

But Will Silver Be Worth More Than Gold?

We have our doubts. Perhaps we could see the gold to silver ratio drop below 15 which is about in line with the ratio of gold to silver in the ground.

So at the current gold price of NZ$1835 that would put silver at $122 per ounce. Not an insignificant move!

Or maybe even get down close to 1.

But all these arguments as to why silver will be worth more than gold overlook one key factor.

 

The Stocks to Flow Ratio and Why Silver Will Not Be Worth More Than Gold

Unlike all other commodities, gold isn’t consumed and is very stable in terms of above ground stocks. In fact gold’s “stocks to flow ratio” is the highest of any commodity – at about 80 to 1. Meaning its “stock” i.e. the amount readily available above ground is 80 times more than its annual mined production. Silver is next at only about 5 to 1 (from memory give or take).

Philip Barton of the Gold Standard Institute does a great job here of explaining this fact which is not commonly discussed…
http://www.goldstandardinstitute.net/2011/07/stock-to-flow-ratio-a-primer/

So even if the mined production of gold were doubled (which would be an extraordinary feat) the flow of new gold to market would only be 3%. This stability of supply – that is not present in any other element – and is definitely not present in any Central Bank controlled fiat currency, is an absolute key factor as to why gold is money.

Silver is second but a distant second in terms of its stocks to flow ratio.

History shows countless examples where the rulers have tried to cheat the people by clipping coins or calling them back in and reducing the gold/silver content. And currently we are in a unique period where there is nothing but fiat currency the world over, so the “stock” of paper money has been and is continuing to be increased year after year.

We continue to believe that the world is heading for a change or at the very least a rebalancing of the monetary system. If this happens silver’s monetary value will likely take precedence over its industrial attributes.

And it is silvers monetary attributes that have little value placed upon them currently.

So in a rebalancing of the monetary system gold will likely rise and silver will rise even more. But the higher stocks to flow ratio of gold will likely keep its value above that of silver.

While we don’t think silver will be worth more than gold, we think silver will increase in value more than gold.

Plus with the price appearing to have bottomed out this year, that makes it a great time to be buying some silver. Go here to buy silver today.

To learn more about when to buy gold or silver check out this article:  When to Buy Gold or Silver: The Ultimate Guide

Editors Note: This post was originally published 5 September 2017. Updated 18 December 2018 to include all new data on supply and demand for the last year.

 

Have You Considered Storing Some Precious Metals Offshore?

New Zealand is known as one of the top 5 best places to store gold offshore (source: Nomad Capitalist).

Discover 12 others reasons you should store some gold and silver bullion in New Zealand: Offshore Gold and Silver Bullion Storage in New Zealand)

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