It has been over 2000 years ago when the world’s initial forms of money were only gold and silver. Looking back at his market, the silver to gold ratio was 12 to 1 on average. That was the exchange rate before between these precious metals! Twelve ounces of silver for 1 ounce of gold! It varied, of course, in different places during those times. But that was average!
- The silver that circulated in the market was 12 times higher than gold.
There was even a time when the price of silver dropped as much as 1/100th of the price of gold! This was the time when the US government through the decree signed by FDR, the Silver Purchase Act of 1934, increased its silver reserve to around 3.5 billion ounces.
In the early 1960s, silver was priced at $1.29 an ounce. The increase in its price was due to the fact that the paper money or US dollar in circulation was too copious.
- The abundance in the supply of foreign exchange caused the price of silver to rise.
People saw an opportunity for silver to go even higher. The fastest way to buy silver was to take the dollar bill to the bank and exchange it. You smelt coins for silver and sell them for a profit. Everyone was buying silver that way. Because of that, in 1965, silver was not included in the minting of US coins.
When the gold standard was abolished and the supply of foreign exchange increased further, silver prices were in the range of $3 to $6. Those who have a lot of silver made a huge profit selling it back to the year 1970. Going from $1.29 to about $6, who wouldn’t sell?
- The abolition of the gold standard and the excessive supply of paper money were the reasons why the price of silver rose.
Towards the end of the 1970s, silver prices were rising too fast. People, instead of selling, returned to buy silver from here and there. By the end of that year and into the early 1980s, silver rose from $5.00 to the higher price of $50.00 an ounce.
- People rushed to buy silver…this rush catapulted the price of silver to $50.00.
Points for analysis:
- Silver in circulation was 12 times that of gold, now the world’s silver has been reduced to almost no reserves. Silver is getting too rare. More gold does not mean the price will go down, but silver will catch up.
- Inflation: paper money printing run amok, too many coins in circulation. The government cannot stop printing, it needs money to operate daily. Debt increases daily. Gold and silver will overtake all printed money in circulation. It will be the main reason why the price of precious metals will skyrocket.
- Investors see gold as the winner right now and it will eventually become too high a price for them to buy. Everything will be converted to silver which is reaching the value of gold. The ratio between 2 metals could be 1:1!
- Everyone will be rushing for silver… as happened before, the price of silver skyrocketed! Since there is a very limited supply of silver and the demand is too high, the price will be ‘unlimited’!