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The Historical Gold to Silver Ratio & How You Can Profit From It
The Historic Gold to Silver Ratio
Throughout history gold and silver have been closely related in value. The historical gold to silver ratio has always been about 15:1 on average, although there are recent exceptions.
In 1972 the U.S. government, under the direction of the Secretary of Treasury Alexander Hamilton, set the value of gold to silver at 15:1 with the “American Act for Establishing a Mint."
The ratio was set at 15 ounces of silver for every ounce of gold. This value is commonly expressed as a gold/silver ratio of 15:1. That bill, however, would have little effect on the actual market value of these two precious metals.
Throughout much of the 20th century the gold to silver ratio has deviated from its historical average. At times the ratio was close to 100:1. The ratio only briefly contracted to 17:1 in the 1980s, and is currently sitting at about 55:1.
Peter Schiff on Gold & Silver
Reasons for the deviation include the removal of the Gold Standard from U.S. monetary policy, and manipulation of the silver market among other things.
I mention the removal of the Gold Standard, because the price of gold started climbing after this U.S. monetary policy change.
Not because gold became more valuable, but because the value of the dollar began to rapidly decline. This was quite predictable.
In fact, Texas Congressman and 2012 presidential candidate, Ron Paul, started investing in gold when the Gold Standard was abolished. He has since made over 500% on his total investment.
In other words, one reason for the skewed gold to silver ratio is the boom in gold. Recently, however, silver has outperformed gold as it tries to catch up with the trend in the price of gold.
How to Profit from the Historical Gold to Silver Ratio
Note: Investing is risky. Even experienced investors lose money. When you invest, do so at your own risk, with investment capital (money you can lose). The markets can change at any time. Always do your own research before investing, or talk to your financial adviser.
Buying Gold & Silver
Whether or not the gold to silver ratio is at a believable or historical rate, silver has always somewhat mirrored gold in price.
That fact, along with the average historical gold to silver ratio, can be used to your advantage when investing in silver.
The demand for silver is rising. Of all of the precious metals that are traded, the demand is the highest for silver.
Silver has many industrial uses, which is why some experts are saying that silver is simply too precious to be used as currency.
Adding to the analysis, it was recently discovered that the ratio of natural above ground gold and silver deposits is about 5:1 in favor of gold.
The lower supply and increased demand on silver, combined with a negative deviation from the historical gold to silver ratio, leads me (and me many experts) to the logical assumption that the price of silver should rise strongly in the near future.
The truth is that as long as the government keeps printing fiat money backed by nothing, the price of both gold and silver will continue to rise - which is why many notable investors are adding gold and silver to their investment portfolios.