The gold to silver price ratio has long been an essential part of global trade. In recent history, it has been a crucial marker for precious metals collectors to determine which of the metals is "on-sale" relative to the other at a given time. Last week, the ratio made history by shattering the historical high of 100:1. As of this writing, the current gold to silver ratio still sits at about 115:1, (which means that you would need 115 ounces of silver to equal 1 ounce of gold), down from a high of nearly 125:1 on Monday morning on March 16th
Historical context illustrates just how out of kilter such a ratio is. The Roman Empire fixed the ratio at 12:1. After centuries of mild fluctuation, the Mint Act of 1792, passed by the United States government, set the ratio at 15:1. It hit new heights in 1939 following President Franklin Roosevelt's decision to set the ratio at 35:1. After the Breton Woods Agreement in 1944, the ratio fell back to a historic norm of about 15:1 once again. The ratio rose sharply in the 1980s, hitting 100:1 in 1991, a result of silver's precipitous drop to under $4/ounce. The range in the past 20 years has mostly fallen between 50:1 and 70:1.
One of the main factors driving the extreme ratio is uncertainty over the coronavirus. The virus has ground the global economy to a halt, with everything from bars and restaurants to sports and entertainment venues shutting down. Layoffs and furloughs are hitting nearly every sector of the economy, and American airlines are seeking a massive bailout. Additional industries are all but sure to follow.
Some investors are responding to the turmoil by liquidating large portions of their assets, and in some cases, all of them. For some, the purpose is to free up cash for day to day living. Others want to free up money for the best available opportunities to purchase assets, be they stocks, bonds, real estate, or metals. Then, there are those who are afraid of the liquidation moves made by others and who consider cash their safe haven.
Safe Haven vs. Industrial Metal
Although both gold and silver are down over the past week, silver has declined more than gold. This disparity between the two precious metals is why the historical gold to silver ratio has been shattered. One of the primary reasons that silver has fallen more precipitously than gold is gold's traditionally perceived status as a safe asset during times of uncertainty. Some investors are leaving gold while others flock to it, perhaps keeping the price from falling further, at least for the time being.
While gold is a haven, silver is an industrial metal. Among other things, silver is used in brazing alloys, batteries, glass coatings, medicine, nuclear reactors, solar energy, touch screens, and semiconductors. With the global economy screeching to a halt, demand for the products as well as for the services in which they are vital is dropping. As companies need less of the material, the price of it drops accordingly. This decline owes at least in part to the extraordinary level of uncertainty as to when the economy will recover.
Silver Eagle Temporarily Sell Out at Mint
Even while the price of silver declined, demand for American Silver Eagles soared last week. The United States Mint sold 1.57 million coins, which brought the total sales for the month to over 2.3 million. These recent sales more than tripled the February sales, which ended at 650,000 pieces. So strong was demand that Silver Eagles are temporarily sold out. Those who point to these facts, though, should recall that industrial silver comes not from coins, but from raw bullion.
An Uncertain Future
Most observers expect that the gold to silver ratio, which is available on KITCO's website, will eventually return to the norms of the past half-century. Among other factors, this return to "normalcy" will depend upon when and how the economy recovers from the disruption of the coronavirus, and whether, and to what extent, extraordinary demand from collectors supports the price of silver in the interim. What is clear, though, is that the current gold to silver ratio highs are historic, and while not guaranteed, it is possible that collectors alive today may never see such a ratio again.